At the request of the Tennessee Valley Authority’s (TVA) Supply Chain, we examined the cost proposal submitted by a company for designing, fabricating, and delivering hydraulic turbine runners and components as specified by TVA. Our examination objective was to determine if the company’s cost proposal was fairly stated for a contract with expenditures up to $175 million.
In our opinion, the company’s proposed (1) hourly manufacturing and labor rates and (2) markup factors for recovery of indirect costs were fairly stated. However, the company’s proposed billing rates for craft labor were overstated. Specifically, the proposed craft billing rates in the example project included (1) an ineligible sick leave markup, (2) overstated state unemployment insurance markup, and (3) duplicated workers’ compensation insurance markup. We estimated TVA could avoid about $1.2 million over the potential $175 million contract by negotiating appropriate reductions to the craft labor billing rates. In addition, we suggest TVA negotiate to include craft labor billing rates in the contract’s rate schedule, including craft markups and cost adders.
