Contract Pricing:

Defense Contractor Contributions to the Software Productivity Consortium

NSIAD-89-74: Published: Jul 24, 1989. Publicly Released: Jul 24, 1989.

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Pursuant to a congressional request, GAO reviewed selected defense contractors' classification of independent research and development (IR&D) expenses, focusing on whether the contractors could classify an industry consortium's activities and member companies' contributions as IR&D expenses.

GAO found that: (1) the Department of Defense (DOD) allowed member companies to treat their contributions to the consortium as manufacturing and production engineering expenses because the consortium's activities enhanced the production process but were not for resale; (2) some consortium activities would be more appropriately classified as IR&D; (3) there was no evidence that the consortium's activities improved member companies' internal manufacturing and production capabilities; and (4) all but one of the member companies charged their entire consortium contributions to overhead accounts other than IR&D.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The Defense Contract Audit Agency (DCAA) conducted a nationwide review of the consortium and, using DOD technical assistance, categorized the consortium's efforts as IR&D on manufacturing and production engineering. An accomplishment report is not warranted.

    Recommendation: The Secretary of Defense should direct DOD personnel to determine whether: (1) the Software Productivity Consortium's actual activities meet the Federal Acquisition Regulation criteria for IR&D or manufacturing and production engineering; and (2) member companies have properly classified their contributions to the consortium.

    Agency Affected: Department of Defense

 

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