Sargent & Lundy, L.L.C. - Contract Nos. 8444 and 12285

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Sargent & Lundy, L.L.C. (S&L) for engineering services under Contract Nos. 8444 and 12285. The contracts provided for TVA to compensate S&L for work on either a cost reimbursable or fixed price basis. Our audit objectives were to determine if (1) costs were billed in accordance with the terms and conditions of the contracts and (2) tasks were issued using the most cost efficient pricing methodology. Our audit scope included about $119.3 million in costs billed to TVA from July 19, 2014, through December 30, 2017. This included $21.0 million for cost reimbursable projects and $98.3 for fixed price projects. In summary, we determined:S&L overbilled TVA $46,828 on cost reimbursable projects including (1) $43,080 in labor burden and other direct costs and (2) $3,748 in volume rebates (of which a credit of $2,236 was subsequently provided to TVA).The use of fixed price payment terms on projects caused TVA to pay at least $11.5 million more than it would have if cost reimbursable payment terms had been used for those projects.We also noted issues with TVA's contract administration including inadequate oversight of the (1) fee evaluation process and (2) process for evaluating fixed price proposals. Additionally, TVA may have missed the opportunity to receive $121,083 in volume rebates due to certain contractual language that benefited S&L.(Summary Only)