The Air Force's Space and Missile Center has experienced difficulty in administrating letter contracts, says an audit from the Defense Department inspector general.

Letter contracts--or "undefinitized contractual actions"--are generally reserved for urgent needs when there's no time to finalize a contract for a requirement. This contract type permits a company to start immediately manufacturing supplies or performing services with final price determination for the work to be established at a later date. Acquisition regulations require that letter contracts be converted into a definitized contract within 180 days.

But, a nonstatistical IG review of 27 Space and Missile Center undefinitized contractual actions worth about $4.8 billion that took place between fiscal 2004 and near the end of fiscal 2009 found that two thirds of the UCAs went undefinitized for an average of 335 days.

The Dec. 16 audit attributes the lateness partly to contractor problems in coming up with an acceptable proposal, but also often to the complexity and size of the program in question. In in four cases, a change in government requirements contributed to the tardiness. Complexity surrounding the collapse of the commercial rocket launch market that caused competitors Boeing and Lockheed Martin in 2005 to combine forces in a joint venture named the United Launch Alliance was responsible at least in part for lateness in definitizing three of the letter contracts, the audit says.

SMC flaws in administering letter contracts may have weakened Space and Missile Center's price negotiation strength and "may have increased the cost risk to the government," the audit states.

For more:
- download the report, D-2011-024 (.pdf)

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