Thalle Construction Company, Inc. - Project Change Request No. 017 to Purchase Order No. 3260693 - Contract No. 10061

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we audited Thalle Construction Company, Inc.'s (Thalle) project change request (PCR) No. 017 issued to Purchase Order (PO) No. 3260693 under Contract No. 10061. TVA issued PO No. 3260693 to Thalle on September 21, 2017, using a target cost estimate (TCE) pricing methodology to provide supervision, labor, equipment, and materials for the Bull Run Fossil Site, Process Water Basin.TCE pricing provides that compensation would be cost based with the maximum amount of total compensation, including fee, not to exceed the TCE established for the work. Additionally, if the project's actual cost exceeded the TCE by more than 3 percent, the amount of overrun would be shared 50 percent by TVA and 50 percent by the contractor. Conversely, if the project's actual cost is more than 3 percent below the TCE, the savings would be shared 75 percent for TVA and 25 percent for the contractor.During March 2019, TVA reduced Thalle's statement of work (SOW) on the PO and required Thalle to complete all services by April 26, 2019. Thalle submitted PCR-017 on November 6, 2019, which provided a revised TCE totaling $5,077,957 based on the reduced SOW. Our audit objective was to determine the validity of Thalle's PCR-017.In summary, we determined Thalle's revised TCE in PCR-017 was overstated:$975,988 due to (1) incorrect deductions for the reduced SOW, (2) ineligible and unsupported additions to the TCE, and (3) overstated general and administrative (G&A) markup and fee used in the original TCE.$39,061 for unallowable performance fee paid on the costs that exceeded the TCE.In addition, based on our cursory review of payments made under PO No. 3260693, we determined Thalle overbilled TVA $58,612 in ineligible G&A costs and fee paid on TVA provided equipment. As a result, we determined Thalle owes TVA $524,403 including (1) $465,791 for its applicable share of the TCE cost overrun and (2) $58,612 in ineligible G&A and fee paid on TVA provided equipment. (Summary Only)