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September 5, 2017

Greater Adherence to ADS-B Contract Terms May Generate Better Performance and Cost Savings for FAA

Required by the FAA Modernization and Reform Act of 2012
Project ID: 
AV2017075
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In 2007, the Federal Aviation Administration (FAA) awarded a more than $1.8 billion contract to develop and implement the Automatic Dependent Surveillance-Broadcast (ADS-B) system. ADS-B is a foundational component of FAA’s Next Generation Air Transportation System, and FAA envisions ADS-B eventually becoming its principal means of aircraft surveillance. As required by the FAA Modernization and Reform Act of 2012, we reviewed FAA’s award and oversight of the ADS-B contract, focusing specifically on whether (1) the ADS-B contract provides FAA the ability to monitor whether the contractor is providing required ADS-B products and services; and (2) FAA’s procedures are adequate for determining whether payments to the contractor are reasonable.
 
We found that while the ADS-B contract provides FAA the ability to monitor whether the contractor is providing required ADS-B products and services, FAA has made only limited use of these provisions. For example, while the contract identifies seven specific measures for evaluating ADS-B performance, and specifies that the contractor should validate that all seven requirements are being met, FAA required reports from the contractor on only three of the seven measures. We also found that while the ADS-B contract contains provisions that can help FAA ensure that payments are reasonable, FAA did not effectively use these contractual tools. For example, FAA is paying monthly subscription fees for ADS-B services despite system performance gaps and negotiated an incentive agreement that pays additional amounts on top of monthly subscription fees. FAA also did not seek adjustments to service volume subscription fee payments when the contractor decided to use shared radio stations that support multiple service volumes.
 
FAA concurred with all nine of our recommendations to improve FAA’s oversight and management of the ADS-B contract and provided target action dates for eight of them. We are requesting additional information for one recommendation.

Recommendations

Open

Closed

Closed on 07.03.2018
No. 1 to FAA

Require the contactor to report on all seven technical performance measures to provide FAA with the ability to determine whether all performance requirements are being met and contractually required products and services are being received.

Closed on 11.17.2017
No. 2 to FAA

To disclose the total cumulative costs for the contract, identify and report the potential range or maximum value of incentive fees payable under the contract, about $78 million, when reporting to managers, Congress, and other stakeholders.

Closed on 07.05.2018
No. 3 to FAA

Modify the contract to clearly identify the differences between critical service specifications for ADS-B and the technical performance measures for ADS-B services that are used for computing incentive awards.

Closed on 07.30.2018
No. 4 to FAA

Conduct and document a review of incentive fee implementation to ensure that it motivates the contractor to exceed the contract specifications and also minimizes performance violations as stated in the H.7 clause. Consider adjustments to the incentive fee implementation as a result of the review.

Closed on 11.17.2017
No. 5 to FAA

Enforce the H.33 clause to reveal capital asset cost and gain necessary pricing information for use in negotiating additions and enhancements to the ADS-B contract as has occurred on at least nine occasions previously.

Closed on 08.30.2021
No. 6 to FAA

Conduct and document an analysis to determine whether or not duplicate subscription fee payments are being made due to radio stations that support multiple service volumes.

Closed on 06.02.2021
No. 7 to FAA

Strengthen future acquisitions by adding or modifying guidance to AMS to incorporate concepts from the OMB Capital Programming Guide on considering the use of successive or incrementally priced contract, orders, or contract line items when acquiring or developing systems spanning many years. This guidance may be incorporated into planned guidance regarding the use of modular contracting concepts.

Closed on 02.16.2018
No. 8 to FAA

Strengthen future acquisitions by expanding guidance in the AMS or the FAA Pricing Guide to: (1) better describe the process for (a) evaluating price reasonableness and (b) determining cost realism when evaluating proposals, to include a review of quantities and types of hardware proposed; and (2) include in existing oversight processes a check to ensure that independent government cost estimates and life cycle cost estimates are not established based solely on the awardee's proposal.

Closed on 11.17.2017
No. 9 to FAA

Strengthen future acquisitions by requiring that contracting officers and specialists in the Surveillance Contracting Branch keep hard and/or electronic back-up copies of contract file information in the contract file; keep the contract up to date, including modifications or changes such as partial acceptance, methodology for partial acceptance, pricing matrix adjustments, and other agreements created by correspondence outside the contract; and ensure that in Agency computers, a complete and accurate record of all contract actions and supporting documentation is established and maintained in real time.