Defense Contract Management: DOD's Lack of Adherence to Key Contracting Principles on Iraq Oil Contract Put Government Interests at Risk

Abstract : The Department of Defense's (DoD) U.S. Army Corps of Engineers (Corps) awarded the $2.5 billion Restore Iraqi Oil (RIO I) contract to Kellogg Brown & Root in March 2003 in an effort to reestablish Iraq's oil infrastructure. The contract was also used to ensure adequate fuel supplies inside Iraq. RIO I was a cost-plus-award-fee type contract that provided for payment of the contractor's costs, a fixed fee determined at inception of the contract, and a potential award fee. The Defense Contract Audit Agency (DCAA) reviewed the 10 RIO I task orders and questioned $221 million in contractor costs. GAO was asked to determine the following: (1) how DoD addressed DCAA's RIO I audit findings and what factors contributed to DoD's decision, and (2) the extent to which DoD paid award fees for RIO I and followed the planned process for making that decision. To accomplish this, GAO reviewed DoD and DCAA documents related to RIO I and interviewed Corps, DCAA, and other officials. GAO recommends that the Secretary of the Army, in contingency situations, ensure that an analysis of the feasibility of following a rigorous award fee process is conducted when using cost-plus-award-fee contracts. In written comments, DoD agreed with the recommendation.