The U.S. Army failed to implement cost-control procedures on a cost-reimbursable service contract with General Dynamics Land Systems for logistic support for the Stryker vehicle family, a recent Pentagon Inspector General (IG) report says.

With the contract, which is valued at about $1.5 billion and covered work between March 2007 and February 2012, the Project Management Office for Stryker Brigade Combat Team (PMO Stryker) failed to “adequately define performance-based contract requirements in clear, specific, and objective terms with measurable outcomes,” the IG says.

“The contract included a metric for availability,” the IG notes, but did not include essential metrics relating to cost-per-unit usage (for example, miles driven) and logistics footprint (that is, dollars in inventory).”

PMO Stryker also failed to “establish the cost-reimbursable contract as one of the basic contract forms: either the completion-form contract in which the contractor is required to deliver a specified, definitive end product or the term-form contract in which the contractor is required to provide a specified level of effort for a stated period of time,” the report says.

PMO Stryker also failed to establish an effective means to measure operational costs and ensure that the level of operational funding was tied to the actual workload required to sustain the Stryker vehicle, but instead, used estimates made years earlier.

“Consequently, the Stryker contractor logistics support contract had no tangible deliverable; neither complied with nor met the intent of DOD (Defense Department) performance-based logistics guidance; and did not meet Federal Acquisition Regulation requirements for a cost-reimbursable contract,” the IG reports.

The Army also had no means to measure the efficiency of the contractor’s cost performance or actual cost overruns or underruns in relation to the fixed fee, the IG notes. “Also, the sole focus on operational readiness created an incentive for the contractor to spend all available funds on Army inventory, valued by General Dynamics at about $676.2 million, resulting in little, if any, cost risk for the contractor or incentive to control cost,” the report says.

“The contractor was authorized to spend about $1.45 billion on the contract, but we calculated the operational support costs for Stryker vehicles at about $1.12 billion for the first 5 years, resulting in about $335.9 million used to accumulate inventory that could have been put to better use,” the IG reports.

the IG recommends the Program Executive Officer (PEO) Ground Combat Systems require PMO Stryker to establish and monitor appropriate cost and inventory control metrics, define contract remedies that include both positive and negative fee measures related to inventory turns and inventory accuracy metrics, use one of the basic contract forms and define a tangible deliverable.

The IG also recommends PEO Ground Combat Systems continue to review operational support costs for Stryker vehicles and determine whether current funding levels are appropriate. And the IG also recommends converting the high-risk, cost-reimbursable contract or portions of the contract to a lower-risk, firm-fixed-price contract.