Contract Pricing:

Contractors Should Provide Historical Vendor Prices to DOD

NSIAD-89-68: Published: Feb 15, 1989. Publicly Released: Feb 15, 1989.

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In response to a congressional request, GAO reviewed the Department of Defense's (DOD) policies for estimating material costs for fixed-price noncompetitive contracts valued at $10 million or more, to determine whether the contractors provided accurate and reliable material estimates.

GAO found that: (1) contractors often estimated material purchases of less than $1 million based on vendor quotations; (2) contractors' failure to consider historical vendor prices resulted in significant overpricing; (3) because contractors did not always adjust their estimates to reflect vendor price reductions, they were not providing accurate and reliable estimates; and (4) DOD procurement regulations did not require contractors to develop, maintain, or disclose historical vendor pricing information.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: In its April 10, 1989, letter to GAO, DOD stated that its response to the report is being coordinated and a full reply will be issued shortly. DOD requested the DAR Council to include guidance issued concerning contractor estimating systems, incorporating the use of historical experience, in its regulation. DAC 88-7 incorporated guidance into DFAR.

    Recommendation: The Secretary of Defense should direct DOD personnel to revise DOD procurement regulations to require that contractors develop, maintain, and furnish historical vendor pricing data in support of proposed prices.

    Agency Affected: Department of Defense


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