DCAA has also raised questions about MITRE’s use of fees. DOD Could Reduce Need to Fund Nonreimbursable Interest Costs

Because the Army and the Air Force delay providing contract funding at the start of a fiscal year, MITRE needs discretionary funding—provided through fees—to cover estimates of nonreimbursable interest costs. Oversight and Negotiation of Fees Could Be Improved

DOD’s oversight of MITRE’s fee expenditures does not ensure that negotiated fee awards are equitable and consistent. Payment cycles on MITRE’s non-DOD contracts are typically longer than those on DOD contracts. Recommendations to the Secretary of Defense

We recommend that the Secretary of Defense issue guidance that, to the extent practicable, specifically identifies the nature and extent of nonreimbursable costs that may be covered by fee and the costs for which fees should not be provided; consider the feasibility of issuing guidance specifying the circumstances in which each of the various funding and payment methods devised by the services should be used; and assign responsibility to the Director of Defense Research and Engineering for routinely surveying the services’ fee-granting processes for FFRDCs, identifying and promoting the use of effective or innovative analytical practices, and recommending needed changes to eliminate inconsistencies in awarding fees. It stated that the report would be helpful to ongoing DOD efforts to strengthen its procedures for the oversight and use of management fees by DOD-sponsored FFRDCs. At that time, we will send copies to other interested congressional committees, the Secretary of Defense, the Director of the Office of Management and Budget, and the President of the MITRE Corporation. GAO Comment

1.
Why GAO Did This Study

Pursuant to a congressional request, GAO examined the use of Department of Defense (DOD) management fees provided to the Mitre Corporation, focusing on: (1) the adequacy of federal guidance on how fees may be used; (2) ways to reduce contractor management fees and strengthen DOD management fee oversight; and (3) DOD efforts to improve the fee management process for its federally funded research and development centers (FFRDC).

What GAO Found

GAO found that: (1) neither the Office of Management and Budget nor DOD has prepared sufficient guidance on negotiating FFRDC contract fees; (2) consequently, recurring questions are raised about Mitre's use of fees, as well as the use of fees by other DOD FFRDC; (3) the services have delayed providing contract funding at the start of a fiscal year; (4) consequently, Mitre has needed large amounts of fee to cover interest expenses; and (5) DOD oversight of contract fees has not ensured that fee awards to Mitre are reasonable and consistent.