Compounding Profit

The following was reported last week in the Tri-City Herald.

The Department of Energy Office of Inspector General (OIG) released a report last week noting that one of the major contractors engaged in clean-up work at Energy's Hanford site improperly awarded $63.5 million in taxpayer money as profit to a subcontractor with which it shared ownership ties.

Lockheed Martin is the principle owner of Mission Support Alliance (MSA). MSA subcontracted some of its work to Lockheed Martin Services (LMS) with a $232 million five year subcontract. The OIG calculated the profit included in the $232 million was $63.5 million and represented unallowable profit because Lockheed Martin was also earning profit at the prime contract level. Normally, profit on inter-company transactions are excluded from Government contracts.

DOE stated that it informed MSA from the beginning of the LMS subcontract that it should prevent profit payments to LMS. DOE stated that MSA ignored the directive.

MSA, of course, disagreed with the OIG report but its position is unknown as the article did not go into that level of detail. Nevertheless, the issue has been festering awhile because the contracting officer's final decision on the matter, requesting MSA to return the compounded profit, is now before the Civilian Board of Contract Appeals (CBCA).

The full report by the OIG is available here.