Supplemental Maintenance and Construction Services Contract

We performed an interim audit of costs billed to TVA by a contractor for providing (1) modification and supplemental maintenance services at TVA nuclear plants (operating unit work) and (2) construction services for the restart of Browns Ferry Nuclear Plant (BFN) Unit 1. The scope of our review included $492.4 million of craft labor costs billed by the contractor through October 29, 2006, which had not previously been audited including: (1) $214 million for modification and supplemental maintenance services and (2) $278.4 million for the BFN Unit 1 services. In summary, we found TVA had been overbilled $1,986,254 because the contractor had (1) used a labor classification not provided for by TVA's contract, (2) miscalculated its payroll tax costs, (3) overpaid certain craft employees as a result of duplicate hours and ineligible double-time labor costs, and (4) misclassified some employees when it paid them. TVA management is planning to review the audit findings in detail to determine what amounts should be recovered from the contractor.