At the request of the Tennessee Valley Authority (TVA) Supply Chain, we examined the contractor’s cost proposal for work in connection with the validation phase of TVA’s Small Modular Reactor and Clinch River Nuclear project. Our examination objective was to determine if the cost proposal was fairly stated for a planned contract with expenditures up to $25 million.
In our opinion, the cost proposal was overstated. Specifically, the proposed total markup rate for recovery of indirect costs was overstated compared to recent actual costs. We estimated TVA could avoid approximately $2.02 million over the planned $25 million by negotiating revised markup rates to more accurately reflect the contractor’s recent actual costs for 2022 and 2023. Subsequently, the contractor stated it would prefer to use its 2024 provisional total markup rate, which was lower than recent actual costs for 2022 and 2023. We estimated TVA could save an additional $473,000 by negotiating for the 2024 provisional total markup rate for a total cost avoidance of $2.49 million over the potential $25 million contract spend. In addition, we identified opportunities to clarify the draft contract language.
