Policy: Technology

Complex math stumps NASA, wastes millions on incorrect contractor payments

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Watchdog,Michal Conger,NASA,Inspectors General,Waste and Fraud,Follow the Money,Technology,Space

If you thought math wouldn't be a problem for rocket scientists, you'd be wrong.

NASA has been overpaying contractors because the math officials there use to calculate performance awards is "overly complex," leading to $66.4 million in potential overpayments, according to a new report by the space agency's Office of the Inspector General.

"Determining the correct formula is so confusing that in one instance a contracting officer used different formulas for the same contract," the IG said.

The space agency uses "award-fee" contracts meant to reward contractors for meeting cost, schedule and performance goals throughout the project period.

Instead of encouraging lower costs and faster work, though, the system's complicated math and lax controls may actually be rewarding subpar work, the IG said.

The contractors receive what are known as interim payments during a project, as well as a final award upon completion.

The complex math led contracting officers to pay millions more than the contractors had actually earned, at least temporarily.

Erroneous payments can be fixed if they're caught, but there's no guarantee the overpayments will be detected.

Headquarters procurement officials "do not periodically review interim and provisional payments to determine whether contracting officers are accurately applying the formulas," the report said.

Not only did officials fail to review the payments, but the IG even found errors in examples used by headquarters personnel to calculate the payments.

NASA argued the report "creates the impression that NASA overpaid contractors $66.4 million due to mathematical errors on interim and provisional award-fee payments," which it said is wrong because it can fix the problem at any time.

The IG kept the finding in its report, however, noting that, although officials have a chance to fix the errors, the overpayments are still a problem for the agency.

A mindset of rewarding good science regardless of performance problems has also led officials to pay some contractors more than their work deserved, the IG said.

The awards contractors receive throughout a project period and upon completion are supposed to reflect performance.

However, contractors are often paid at completion whatever they weren't awarded during the project, which the IG said violates NASA regulations.

"This practice circumvents a Federal procurement rule that prohibits 'rollover' of unearned fees to subsequent performance periods and promotes what is commonly known at NASA as the 'Hubble psychology' — an understanding that as long as a project ultimately works as intended NASA will overlook cost and schedule overages that occurred during its development," the IG said.

The name "Hubble psychology" comes from the Hubble telescope, which launched years after scheduled, cost much more than budgeted and needed costly repairs. But as NASA officials pointed out, "the telescope is generally viewed as a national treasure and its cost and performance issues have largely been forgotten. "

This mentality, and poor evaluation practices, led to $2.4 million in "excess" awards to contractors who didn't meet criteria they should have been evaluated with, the IG said. These overpayments were separate from mathematical mistakes.

"The OIG also determined that NASA applies a clause to end-item contracts... that allows the contractor to earn award fees in the final evaluation even though the Agency determined the contractor's performance did not merit the full award in prior evaluation periods," the report said.

NASA disagreed with the IG's recommendation to simplify its formulas for interim payments.

"Although the application of the formulas can be confusing without proper training, the formulas are not overly complex and ensure the proper payments are made over the life of the contract regardless of situation or rating," an assistant administrator said.

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