Independent Examination of Cost Proposal for Coal Combustion Residual Program Management Services

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for coal combustion residual program management services. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned 20-year contract.In our opinion, the company's cost proposal was unsupported and overstated. The company informed us that it did not have financial statements or other actual historical cost documentation to support its proposed costs. Therefore, we could not completely verify (1) certain aspects of the company's proposal for a Gallatin Fossil Plant (GAF) ash pond closure and restoration project or (2) if the labor and labor markup rates included in the company's proposed rate attachments were fairly stated. However, based on our review of the company's estimation methodology and the limited supporting documentation provided by the company, we found: The company's proposal for an $892.8 million GAF project was overstated because the company's proposal included (1) inflated subcontract costs, (2) overstated noncraft labor cost, (3) overstated markup rates for the recovery of the company's indirect costs, and (4) a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal. We estimated TVA could avoid $117.6 million on the proposed $892.8 million GAF project by negotiating appropriate reductions to the proposal.The company's proposed contract rate attachments included (1) craft labor rates that were overstated and did not conform to TVA's project labor agreement, (2) noncraft cost-reimbursable labor rates that included excessive burden, and (3) noncraft time and material rates that included excessive burden. We suggested TVA negotiate to revise the company's rate attachments to (1) comply with the project labor agreement and (2) eliminate excessive burden on noncraft cost-reimbursable and time and material labor rates.(Summary Only)