Proposal for Civil Projects and Coal Combustion Residual Program Management Work

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned <br> $200 million contract.In our opinion, the company's cost proposal was overstated. Specifically, we found:The company's proposed costs for a Cumberland Fossil Plant (CUF) project included overstated (1) equipment costs, (2) subcontract costs, (3) material costs, and (4) general and administrative (G&A) rate. In addition, we found the company's CUF proposal included (1) a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP), (2) unallowable contingency costs, and (3) understated noncraft labor costs.</li> The company's proposed rate attachments included (1) incorrect craft labor rates, (2) noncraft wages that were not in compliance with the RFP's requirements, (3) fee on cost reimbursable work that exceeded the maximum allowable fee in TVA's RFP, and (4) hourly overhead markup rates for project direct costs for which the company could not provide support.</li>We estimated TVA could avoid about $27.6 million on the planned $200 million contract by (1) negotiating the appropriate reductions to the company's proposed equipment costs, subcontract costs, material costs, and G&A rate; (2) limiting the company's fee rate to the RFP's maximum allowable rate; (3) eliminating contingency costs on the CUF project and future cost reimbursable projects; and (4) negotiating changes to the company's proposed labor costs to more accurately reflect its actual labor rates. In addition, we suggest TVA <br> (1) revise the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges, (2) negotiate a reduction to the company's proposed fee for cost reimbursable work to the maximum allowable fee rate in TVA's RFP, and (3) remove the overhead markup rates from the rate attachments and require the company to bill actual direct project costs as incurred.(Summary Only)