Contract Pricing:

Threshold for Analysis of Subcontract Proposals Not Clear

NSIAD-92-69: Published: Mar 20, 1992. Publicly Released: Mar 20, 1992.

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GAO reviewed the Department of Defense's (DOD) management of subcontracts, focusing on whether procurement officials make consistent and uniform interpretations of the dollar threshold at which prime contractors are required to submit cost or price data analyses for prospective subcontracts.

GAO found that: (1) DOD procurement officials have two different interpretations of the Federal Acquisition Regulation (FAR) dollar threshold applicability; (2) some procurement officials interpret FAR as requiring cost or price data analyses if the prospective subcontract exceeds the $500,000 threshold, while others cite another section of FAR to justify a higher threshold of $1 million or both more than $500,000 and more than 10 percent of the prime contract value; and (3) the different interpretations could result in the government not receiving analyses to establish fair contract prices or in contracts being burdened with analyses of subcontract proposals not required.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD has proposed a Federal Acquisition Regulation change to the Civilian Agency Acquisition Council for the purpose of clarifying the regulatory threshold. Final action is awaiting agreement on the exact wording change.

    Recommendation: The Secretary of Defense should direct the Defense Acquisition Regulatory Council to clarify the regulatory threshold at which prime contractors are required to analyze prospective subcontractor cost or pricing data and provide the results to the government before prime contract price agreement.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD disagrees with the GAO recommendation to review "alternative potential thresholds." DOD has stated that the threshold will be $500,000. Therefore, DOD believes that an IG review of compliance with the stated threshold would be more productive.

    Recommendation: The Secretary of Defense should request the Inspector General to evaluate, in conjunction with the congressionally mandated review of the effects of the threshold increase in the Truth in Negotiations Act, the effects of alternative potential thresholds for analysis of prospective subcontract data before prime contract price agreement.

    Agency Affected: Department of Defense

 

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