B-129324, B-118764, MAR. 12, 1958

B-118764,B-129324: Mar 12, 1958

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TO THE SECRETARY OF THE AIR FORCE: ENCLOSED IS OUR REPORT ON EXAMINATION OF THE NEGOTIATIONS OF TARGET PRICES AND THE PROPOSED FINAL PRICE UNDER DEPARTMENT OF THE AIR FORCE CONTRACT AF 33/038/-20783 WITH STUDEBAKER-PACKARD CORPORATION. THAT THE PROPOSED SETTLEMENT FOR THE INCENTIVE PORTION OF THE CONTRACT AT 82.3 MILLION DOLLARS IS ABOUT 1.3 MILLION DOLLARS HIGHER THAN IS JUSTIFIED BECAUSE IT (1) INCLUDES PROFIT ON A TARGET PRICE THAT WAS EXCESSIVE IN RELATION TO THE MANNER IN WHICH THE CONTRACT WAS PERFORMED AND (2) ALLOWS THE CONTRACTOR TO PARTICIPATE IN "COST REDUCTIONS" RESULTING PRIMARILY FROM THE OVERSTATED TARGET COST.

B-129324, B-118764, MAR. 12, 1958

TO THE SECRETARY OF THE AIR FORCE:

ENCLOSED IS OUR REPORT ON EXAMINATION OF THE NEGOTIATIONS OF TARGET PRICES AND THE PROPOSED FINAL PRICE UNDER DEPARTMENT OF THE AIR FORCE CONTRACT AF 33/038/-20783 WITH STUDEBAKER-PACKARD CORPORATION, DETROIT, MICHIGAN.

THIS MATTER HAS BEEN THE SUBJECT OF CORRESPONDENCE BETWEEN THIS OFFICE AND THE DEPARTMENT OF THE AIR FORCE BEGINNING WITH OUR LETTER OF SEPTEMBER 25, 1956, IN WHICH WE POINTED OUT THE NECESSITY FOR SUBMISSION OF DATA FROM THE CONTRACTOR CONCERNING THE MATTERS QUESTIONED BY US. AFTER REVIEW OF THE INFORMATION SUBMITTED BY THE CONTRACTOR ON DECEMBER 5, 1957, WE BELIEVE, ON THE BASIS OF THE PRESENT RECORD, THAT THE PROPOSED SETTLEMENT FOR THE INCENTIVE PORTION OF THE CONTRACT AT 82.3 MILLION DOLLARS IS ABOUT 1.3 MILLION DOLLARS HIGHER THAN IS JUSTIFIED BECAUSE IT (1) INCLUDES PROFIT ON A TARGET PRICE THAT WAS EXCESSIVE IN RELATION TO THE MANNER IN WHICH THE CONTRACT WAS PERFORMED AND (2) ALLOWS THE CONTRACTOR TO PARTICIPATE IN "COST REDUCTIONS" RESULTING PRIMARILY FROM THE OVERSTATED TARGET COST.

WE SHALL BE GLAD TO DISCUSS THIS MATTER WITH YOU OR YOUR REPRESENTATIVES, IF YOU SO DESIRE, AND WE SHALL APPRECIATE ADVICE AT THE EARLIEST POSSIBLE DATE AS TO THE ACTION TAKEN OR CONTEMPLATED BY YOUR DEPARTMENT.