B-125082, SEP. 26, 1960

B-125082, SEP. 26, 1960

TO THE SECRETARY OF DEFENSE:

ENCLOSED IS OUR REPORT ON EXAMINATION OF THE PRICING OF A FIXED PRICE SUBCONTRACT ISSUED TO GREER HYDRAULICS, INC., LOS ANGELES, CALIFORNIA, BY LOCKHEED AIRCRAFT CORPORATION, BURBANK, CALIFORNIA, FOR PROPELLER GOVERNOR TEST STANDS UNDER DEPARTMENT OF THE NAVY CONTRACT NOAS 56-128I.

WE FOUND THAT THE SUBCONTRACT PRICE OF $215,500 WHICH GREER NEGOTIATED WITH LOCKHEED FOR 24 PROPELLER GOVERNOR TEST STANDS WAS EXCESSIVE BY $17,700 BECAUSE THE PRICE WAS BASED ON A MORE COSTLY, OBSOLETE VERSION OF AN EARLIER TEST STAND. THE CURRENT MODEL BEING PRODUCED BY GREER, BEFORE SUBMISSION OF ITS PROPOSED PRICE TO LOCKHEED, INCORPORATED LESS EXPENSIVE COMPONENTS AND MATERIALS AND, THEREFORE, THE ESTIMATED COST DATA GREER SUBMITTED TO LOCKHEED WERE NOT APPLICABLE TO THE TEST STANDS BEING PROCURED. LOCKHEED ACCEPTED THE PROPOSED PRICE AS SUBMITTED BY GREER WITHOUT VERIFYING THE COST DATA AND OTHER INFORMATION FURNISHED BY GREER IN SUPPORT OF THE PROPOSED PRICE. TO THE SUBCONTRACT PRICE PAID TO GREER FOR TEST STANDS, LOCKHEED ADDED RELATED CHARGES AND PROFIT RESULTING IN EXCESS COST TO THE GOVERNMENT OF $21,500 UNDER LOCKHEED'S PRIME CONTRACT.

GREER AND LOCKHEED HAVE INFORMED US IN COMMENTS ATTACHED TO THE REPORT THAT THE PRICE THEY NEGOTIATED WAS REASONABLE UNDER THE CIRCUMSTANCES. THE NAVY IS REVIEWING THE MATTER FURTHER AND HAS INCLUDED IN CONTRACT NOAS 56-128I A SPECIAL CLAUSE WHICH PERMITS RECOVERY OF ANY AMOUNT LATER DETERMINED TO BE DUE THE GOVERNMENT UNDER LOCKHEED'S SUBCONTRACT WITH GREER.

WE ARE INFORMING THE SECRETARY OF THE NAVY OF OUR BELIEF THAT FURTHER ACTION SHOULD BE TAKEN IN THIS CASE TO OBTAIN AN EQUITABLE ADJUSTMENT IN PRICE FROM GREER AND ARE REQUESTING ADVICE OF THE FINAL ACTION TAKEN ON THIS MATTER.