Allegations of Contract Buy-In and Substantial Cost Increases in the Navy's Standard Automated Financial System

IMTEC-85-2: Published: Oct 30, 1984. Publicly Released: Oct 30, 1984.

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In response to a congressional request, GAO reviewed allegations made regarding the Navy's Standard Automated Financial System that: (1) the contractor "bought in" on the contract; (2) the Navy had decided to proceed with the project even though costs have substantially increased; and (3) project costs may increase to $200 million.

GAO did not find sufficient evidence to conclude that the contractor purposely made a low offer knowing that future modifications would be required and could be used to make up the understated amount. However, GAO found that project and contract costs have increased substantially because the original design concept was expanded, certain costs were not included in the original estimates, and the system's complexity was initially underestimated by both the contractor and the Navy. GAO also found that the Navy's decision to proceed with the project was based on mission needs, contractor commitments, and Navy project management improvements. The contracting officer felt that these factors outweighed concern over increased costs. Although GAO could not substantiate the allegation that project costs may rise to $200 million, GAO believes that the costs are susceptible to future increases because the Navy does not have specific cost containment plans.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Navy should direct the Assistant Secretary for Financial Management to firmly set the Navy's system requirements and ensure that the contractor provides fully documented design specifications at the end of the design phase as required by the contract.

    Agency Affected: Department of Defense: Department of the Navy

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Navy should direct the Assistant Secretary for Financial Management to prepare an updated economic analysis to compare current benefits, or those of a reduced system, with current project cost estimates, including all costs in accordance with NAVCOMPT Manual, paragraph 074723-3d, and an updated cost-to-complete estimate from the contractor.

    Agency Affected: Department of Defense: Department of the Navy

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Navy should direct the Assistant Secretary for Financial Management to develop a contingency plan to identify alternative courses of action for management to contain costs and ensure cost-effective results.

    Agency Affected: Department of Defense: Department of the Navy

 

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