At the request of the Tennessee Valley Authority’s (TVA) Supply Chain, we examined the cost proposal submitted by a contractor for designing, fabricating, and delivering hydraulic turbine runners and components as specified by TVA. Our examination objective was to determine if the contractor's cost proposal was fairly stated.
In our opinion, the contractor’s cost proposal was overstated. Specifically, we determined the contractor’s proposed (1) markup rates were overstated compared to recent actual costs and (2) fixed price project costs included excessive contingency costs and profit. We estimated TVA could avoid about $14.1 million over the potential $75 million contract by (1) negotiating appropriate reductions to the markup rates, (2) removing excessive contingency costs from fixed price projects, and (3) reducing the profit on fixed price projects.
