ABB, Inc. - Contract No. 4645

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by ABB, Inc. (ABB), for providing large and medium power transformers under Contract No. 4645. Our audit included $83.3 million in costs paid by TVA between June 1, 2011, and March 31, 2015. Our objective was to determine if the costs billed to TVA were in compliance with the contract terms and conditions. In summary, we determined TVA missed payment discount opportunities of $1,029,965, including (1) $936,596 due to incorrect payment terms input into the Maximo system on purchase orders (PO) for which TVA opted to make progress payments, and (2) $93,369 for POs for which TVA opted not to make progress payments. Also, ABB overbilled TVA $155,577 for transformer and other costs, and TVA is due a $188,000 rebate for a transformer that had been purchased. In addition, we noted several opportunities to improve contract administration by TVA. Specifically, we found (1) ABB billed TVA $10,293,437 for materials, equipment, and services not provided for under the contract scope of work; (2) TVA payments exceeded the contract monetary limits; (3) ABB billed TVA $506,592 for instrument transformer purchases that should have been ordered and paid for under a different contract TVA had with ABB; and (4) ABB had not provided the price adjustment formulas for each transformer design type required by the contract. TVA management (1) changed the contract payment terms in the Maximo system on March 21, 2014, from Net 45 days to 2 percent-16 days/Net 45 days, which corrected the problem of missed payment discount opportunities when TVA had opted to make progress payments, and (2) issued Contract Amendment No. 4, effective July 28, 2015, which partially addressed the contract scope of work and fully addressed the price adjustment formulas. However, the contract scope of work needs to be further amended to include materials and services.(Summary Only)