FAC Explorer

Finding 602173 (2022-001)

- Repeat Finding
Requirement
B
Questioned Costs
$1
Year
2022
Accepted
2023-03-29
Audit: 27018
Organization: The Charles Stark Draper Laboratory, Inc. (MA)
Auditor: Pricewaterhousecoopers LLP

AI Summary

  • Core Issue: Draper is questioned on the reasonableness of $3,652,353 in depreciation costs for the Atrium project, continuing previous audit findings.
  • Impacted Requirements: This finding relates to FAR 31.201-3 on cost reasonableness and compliance with 2 CFR Part 200, Appendix XI, regarding allowable costs.
  • Recommended Follow-Up: Draper must clarify why the Atrium is necessary for its business and explore less costly alternatives to justify the depreciation costs.

Finding Text

2022-001. Depreciation of Atrium Construction Costs ? Unreasonable a. Condition: This finding is a continuation of audit findings 2020-001 and 2021-001 from the Draper FY 2020 and 2021 Uniform Guidance audits, which questioned the reasonableness of constructing an Atrium to the front of Draper?s Duffy Building. For a complete understanding of this audit issue, we recommend that you review audit findings 2020-001 and 2021-001. However, as a quick overview, in September of 2017, Draper completed construction of a $54,785,170 six story open space atrium as an addition to its Duffy Building. This atrium serves as the new entrance to Draper?s main building and it contains a lobby, building security areas, information technology (service desk), meeting areas, a food court and a presentation area. The atrium also results in the addition of 23,640 square feet to the contractor?s facility with the vast majority being comprised of open space. Although the building of this atrium provides additional square footage to Draper?s facilities, we found that Draper is utilizing only a 15-year period to depreciate construction costs starting with FY 2018. For the first two years of this period, FY 2018 and FY 2019, Draper decided to not request nor claim any depreciation costs from the Federal Government. Draper?s forward pricing rate submission, dated May 20, 2019, also excluded these depreciation costs from forecasted expenses for FY 2020 through FY 2023. On October 24, 2022, Draper provided us an additional analysis for the purpose of demonstrating that a majority of the atrium project costs were competitively bid. It is Draper?s position that since the general contractor for this project received competitive bids for the subcontract work, which represented a significant portion of the project, then the cost associated with the overall project is reasonable. This analysis included all the competitive quotes that the General Contractor obtained before awarding each of the subcontracts. Our review of these documents did demonstrate that seventy-seven percent of the total project costs were competitively bid as the General Contractor chose the low bid subcontractor, in all cases, when awarding the work. This addresses only part of Draper's responsibility for justifying the reasonableness of the project. To be reasonable, Draper must also demonstrate that this type of cost was ordinary and necessary for the conduct of Draper's business or the contract performance. To address the need and business case for the atrium, Draper provided a presentation to DCAA and its DCMA Administrating Contracting Officer (ACO) on April 28, 2022. As of the date of this report, no official determination has been made on whether Draper?s presentation adequately addressed the requirements of FAR 31.201-3(a) and (b)(1). As a result, we will continue to question the depreciation costs associated with the Atrium project, which totaled $3,652,353 for FY 2022, in accordance with FAR 31.201-3(a) and (b)(1), Determining Reasonableness. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned depreciation costs subject to penalties in accordance with FAR 42.709. b. Criteria: Per FAR 31.201-3, Determining reasonableness, (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer?s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor?s business or the contract performance; (2) Generally accepted sound business practices, arm?s-length bargaining, and Federal and State laws and regulations; (3) The contractor?s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor?s established practices. c. Recommendation: Draper still needs to address why this project was ordinary and necessary for the conduct of Draper?s business or the contract performance and whether or not Draper considered less costly options that would meet its needs. d. Draper?s Reaction: Draper?s reaction follows verbatim. Draper does not concur with DCAA?s finding that the atrium depreciation expense is unreasonable. As DCAA points out, Draper provided a reasonableness presentation to address the business need for the atrium on April 28, 2022 and provided additional analyses and evidence (October 2022) proving all subcontractors utilized on the project were competitively awarded, which establishes those costs were awarded at a fair and reasonable price. Draper reserves the right to negotiate this issue with the ACO. Draper has, and continues to support the Government?s requests in regards to the reasonableness of the atrium. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: Pending DCMA Resolution e. Auditor?s Response: We will provide any audit support requested by the ACO during negotiations.

Categories

Questioned Costs Procurement, Suspension & Debarment Allowable Costs / Cost Principles

Other Findings in this Audit

Programs in Audit

ALN Program Name Expenditures
12.RD Lockheed Martin - Sunnyvale $20.25M
12.RD Interstate Electronics CORP $7.90M
43.RD Johnson Space Center $6.11M
12.800 Wright Laboratory $4.62M
99.U99 Uuv Aa Sponsor $4.31M
12.RD Naval Undersea Warfare Center Newport $2.82M
12.RD Mriglobal $2.44M
12.RD Dese Research INC $2.28M
12.300 Office of Naval Research $2.11M
12.RD Ussocom $1.91M
12.RD Northrop Grumman Mission Systems $1.84M
99.U99 Leidos, Inc. $1.78M
81.RD Lawrence Livermore National Laboratory $1.75M
12.RD Spawar Systems Center San Diego $1.39M
12.RD USA Medical Research Acquisition Actvty $1.36M
12.420 USA Medical Research Acquisition Actvty $1.29M
99.U99 Confidential Industrial Partner $1.28M
12.910 Defense Advance Research Projects Agency $1.18M
12.RD Naval Information Warfare Center Pacific $1.15M
12.RD Rutgers University $1.13M
12.RD Air Force Research Laboratory $979,029
99.U99 Systems & Technology Research, LLC $855,465
12.RD Eo Vista LLC $817,406
12.RD Textron Systems Corporation $801,635
12.RD Strategic Systems Programs $782,805
12.RD Gird Systems, INC $729,743
12.RD Applied Research Associates INC $625,216
12.RD Leidos, Inc. $611,941
93.RD US Food and Drug Administration $596,507
12.RD W6qk Acc-Apg Natick $497,919
12.RD Natick Soldier Systems Center $473,077
93.350 National Institutes of Health $466,010
12.RD Naval Surface Warfare Center Dahlgren $458,642
12.RD Usaf/afmc/aflcmc $380,419
12.RD Systems Planning and Analysis, Inc. $365,066
12.RD Space Development Agency $363,647
12.RD Systems & Technology Research, LLC $361,584
12.RD U S Government $335,622
12.RD Office of Naval Research $326,885
12.RD Cfd Research Corporation $317,719
12.RD Dynetics Technical Solutions, Inc. $315,595
12.RD Physical Sciences Incorporated $309,622
12.RD Defense Threat Reduction Agency $302,637
12.RD Hq Ussocom Sordac-K $290,703
12.RD The Mil Corporation $285,102
12.RD Sri International $279,164
12.RD The Pennsylvania State University $273,446
12.910 University of Massachusetts Worcester $270,596
99.U99 U S Government $253,936
93.RD University of Illinois at Chicago $225,341
12.RD Kbr $184,759
12.RD Lockheed Martin - Palmdale $153,340
12.RD Bae Systems $143,009
12.RD Flir Systems Inc. $141,455
12.RD Lockheed Martin - Littleton $129,611
93.RD Vox Biomedical LLC $125,673
81.RD Sandia National Laboratories $101,356
93.837 National Institutes of Health $96,485
12.RD Raytheon - Tuscon $86,823
47.RD The National Science Foundation $74,204
12.RD Natick R&d Center $70,647
12.RD Serco INC $69,962
12.RD Missile Defense Agency $65,355
12.RD Resonant Sciences LLC $64,274
43.RD NASA Shared Services Center $62,019
43.RD Massachusetts General Hospital $55,597
43.RD Kbr $51,889
12.RD Skyline Nav Ai INC $46,550
12.RD Johns Hopkins Univ Applied Physics Lab $40,653
99.U99 Budget & Finance Systems Activity (bfsa) $38,002
12.RD Radiation Monitoring Devices, Inc. $25,512
12.RD Assett, Inc. $19,080
12.RD Charles River Analytics $17,976
12.431 Partners Healthcare Research Management $16,074
43.RD Analytical Mechanics Associates, Inc. $10,512
15.RD Leidos, Inc. $9,234
12.RD Ball Aerospace and Technologies Corp. $8,723
12.RD Advanced Technology International (ati) $8,636
12.RD Picatinny Arsenal $8,545
12.RD Space & Missile Systems Center $8,278
12.RD Lincoln Laboratory $6,524
43.RD Deep Space Systems Inc. $5,884
12.RD Northrop Grumman Space Technology $5,329
12.RD US Army - Aberdeen Proving Ground $5,217
99.U99 Science Applications International CORP $3,804
12.RD Booz Allen & Hamilton $2,957
12.RD Wright Laboratory $2,789
99.U99 Sandia National Laboratories $2,737
12.RD Cybrix Group INC $2,689
12.RD Lockheed Martin - Mitchel Field $2,588
12.RD Saf/aqcs $2,470
12.RD Naval Undersea Warfare Center Keyport $2,131
43.RD Smithsonian Astrophysical Observatory $2,057
12.RD Maxentric Technologies LLC $1,820
12.RD Army Research Laboratory $1,783
12.RD Northrop Grumman Systems Corporation $1,730
12.RD Chemring Detection Systems $1,701
12.RD Air Force Research Laboratory - Rome Ny $1,654
43.RD Southwest Research Institute $1,573
99.U99 Lockheed Martin Is&gs Hanover MD $1,484
12.RD Integrated Solutions for Systems, INC $1,407
12.RD Lockheed Martin - Riviera $1,373
12.RD Par Government Systems Corporation $1,364
12.RD Hq United States Air Force / A2i $1,355
12.RD Naval Surface Warfare Center Carderock $1,341
12.RD Eglin Air Force Base $1,307
12.RD Lockheed Martin - Orlando $1,295
12.RD Navy Engineering Logistics Office $1,075
12.617 State of Connecticut $899
12.RD Army Contracting Command - Redstone $788
12.RD Novawurks Inc. $757
81.RD Battelle Energy Alliance, LLC $728
12.RD Defense Advance Research Projects Agency $663
12.RD Eoir Technologies, INC $656
11.RD Noaa/national Weather Service $653
12.RD Battelle $628
12.RD Northrop Grumman Electronic Systems $608
12.RD Boeing Company $563
12.RD Mayflower Communications INC $499
12.RD Next Century Corporation $494
12.RD US Army Rdecom Cont Ctr - Adelphi $489
97.RD Department of Homeland Security $477
12.RD Lockheed Martin Advanced Technology Labs $428
43.002 National Space Biomedical Research Inst $398
93.173 Akouos, LLC $384
12.RD US Army Rdecom Acq Ctr $353
12.RD Air Force Material Command - Hanscom $338
12.RD Digital Infuzion $331
43.RD Ames Research Center $299
12.RD Navmar Applied Sciences Corporation $289
93.113 Northwestern University $262
12.RD The Mitre Corporation $186
12.RD Aosense, Inc. $167
12.RD Sp Global, Inc. $164
12.RD Science Applications International CORP $157
12.RD University of Dayton Research Institute $151
99.U99 Johns Hopkins Univ Applied Physics Lab $135
43.003 NASA Shared Services Center $135
12.RD Doolittle Institute, Inc. $132
12.RD The Perduco Group, Inc. $128
12.RD Intelligent Fusion Technology, Inc. $80
81.RD Radiation Monitoring Devices, Inc. $74
12.RD Proactive Technologies, Inc. $69
12.341 Northeastern University $63
12.RD Raytheon Bbn Technologies CORP $46
12.RD Teledyne Scientific & Imaging, LLC $36
12.RD Alion Science & Tech $35
93.RD The University of Texas at Dallas $34
47.050 The National Science Foundation $28
12.RD Neany, Inc. $21
43.001 Johns Hopkins Univ Applied Physics Lab $17
12.RD Naval Surface Warfare Center Crane Div $15
43.RD Orbital Sciences Corporation $14
93.853 National Institutes of Health $12
43.007 NASA Shared Services Center $8
12.RD Vencore Services and Solutions, Inc. $6
12.351 Defense Threat Reduction Agency $5
12.RD Vescent Photonics, Inc. $1