The audit report “Restructuring of the International Space Station
Contract” (IG-02-002, November 8, 2001) has been posted to the NASA
Office of Inspector General Web site

In December 1999, Johnson Space Center and The Boeing Company
restructured the International Space Station (ISS) contract. The
purpose of this restructuring was to settle more than $404 million of
Boeing claims for additional costs, change the contract type, and
address other contract actions. Johnson claimed these changes would
facilitate and provide an incentive for efficient, high quality
performance for the remaining work under the contract.

We determined that NASA did not sufficiently justify the restructuring
of the ISS contract. Specifically, Johnson settled Boeing requests for
additional costs allegedly caused by the Government, and other
potential claims without performing a sufficient analysis to show that
Boeing’s proposed costs were fair and reasonable. Also, Johnson did
not adequately support its justification for waiving the Federal
Acquisition Regulation requirement that Boeing submit certified cost or
pricing data. As a result, NASA has little assurance that Boeing did
not overstate the value of claims totaling $404 million.

We also found that NASA’s Office of Procurement did not exercise
adequate oversight of the restructured contract, even though it was one
of the most significant noncompetitive awards in fiscal year 2000. The
Office of Procurement did not know that Johnson had not performed cost
or price analyses of the claims of additional costs.

Also, Johnson inappropriately modified the fee structure of the ISS
contract by eliminating the Agency’s option to recoup provisional fees
paid to Boeing if the contractor’s technical and cost performance is
ultimately unsatisfactory. As a result, NASA could pay Boeing as much
as $69.4 million in fees (the amount will increase as NASA adds work to
the contract) even if the contractor’s on-orbit performance is

We recommended that Johnson perform an adequate price analysis and
properly support justifications for waivers to submit certified cost or
pricing data on future modifications of the ISS contract. We also
recommended that the Office of Procurement perform adequate oversight
of major procurement actions for the ISS contract. These actions would
help ensure that NASA has a sound basis for negotiating as much as
$330 million of future claims by Boeing and that NASA follows
procurement regulations for major procurement actions. We further
recommended that Johnson ensure that the fee pools for the ISS contract
are measurable and consistent with Agency criteria or obtain a waiver
for not doing so. This action would ensure that Johnson does not
violate procurement regulations by paying Boeing as much as
$69.4 million in fees for cost performance that cannot be measured
regardless of whether Boeing’s on-orbit performance is satisfactory.

Johnson did not concur with the recommendations and we will forward our
recommendations to the NASA Audit Followup Official for final

To comment on this report, please send e-mail to: