Review of Selected Negotiated Contracts Under the F-16 Multinational Aircraft Program

PSAD-81-3: Published: Oct 17, 1980. Publicly Released: Oct 17, 1980.

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GAO reviewed 20 contract actions, valued at over $3 billion, associated with the F-16 multinational aircraft program. GAO objectives were to determine if prices negotiated by the Department of Defense (DOD) were reasonable, identify the causes of any overpricing, and suggest corrective actions.

GAO found overpricing of about $14.2 million. About $6 million of this amount was attributable to subcontract price options which may be subject to recovery under the Truth in Negotiations Act. When the prime contract cost sharing ratio for overruns was reduced from 100 percent to 70 percent, no adjustment was made in the contractor's profit allowance even though it had received an additional $51 million to assume full risk for overruns. This could result in the contractor's receiving an unintended reimbursement of about $13.3 million. All nonrecurring inplant materials costs are being charged to the Air Force program. Since the contractor supplies inplant materials to its European subcontractors, the European participating government (EPG) program should bear a pro rata share of these costs. The Air Force and the prime contractors and subcontractors involved were generally successful in negotiating reasonable prices. The overpricing resulted from situations in which sufficient cost data were available to the contracting officer to have supported the negotiation of a lower price; or accurate, complete, and current data were not made available to the contracting authority, resulting in overpricing that was potentially subject to downward adjustment. Essentially all of the potential defective pricing GAO identified resulted from failure to audit the vendors' proposed materials costs. The remaining overpricing resulted from poor procurement practices. Similar overpricing may exist in $896 million worth of subcontracts which GAO did not include in the review.

Recommendations for Executive Action

  1. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of Defense should determine whether the amount per aircraft being recouped from EPG's for nonrecurring costs includes contractor inplant materials' nonrecurring costs being charged to the USAF contract but excluded from the EPG contract.

    Agency Affected: Department of Defense

  2. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of Defense should determine whether the amount per aircraft being recouped from EPG's for nonrecurring costs includes contractor inplant materials' nonrecurring costs being charged to the USAF contract but excluded from the EPG contract.

    Agency Affected: Department of Defense: Department of the Air Force

  3. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of Defense should review additional coproduction subcontract costs, particularly materials costs, that have not been audited and initiate appropriate action for postaward audit in those instances in which costs meet the dollar criteria set forth in Public Law 87-653.

    Agency Affected: Department of Defense

  4. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of Defense should review additional coproduction subcontract costs, particularly materials costs, that have not been audited and initiate appropriate action for postaward audit in those instances in which costs meet the dollar criteria set forth in Public Law 87-653.

    Agency Affected: Department of Defense: Department of the Air Force

  5. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of Defense should determine whether the Government is entitled to a price adjustment on the subcontracts for the 348 EPG buy and the prospective 400 Air Force aircraft buys, if executed, as provided for by the defective pricing clause included in the prime contract and subcontracts.

    Agency Affected: Department of Defense

  6. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of Defense should determine whether the Government is entitled to a price adjustment on the subcontracts for the 348 EPG buy and the prospective 400 Air Force aircraft buys, if executed, as provided for by the defective pricing clause included in the prime contract and subcontracts.

    Agency Affected: Department of Defense: Department of the Air Force

  7. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of Defense should direct the Secretary of the Air Force to (1) treat the change as void by adjusting contract documents to reflect the reversion to the original 0/100 cost overrun sharing ratio and negotiate a method for allocating cost overruns between basic ECP0006 and changes, or (2) negotiate an equitable consideration from the contractor in return for the change to a 70/30 cost overrun sharing ratio on the basic ECP0006.

    Agency Affected: Department of Defense

  8. Status: Closed

    Comments: GAO has no information on the actions taken in response to this recommendation.

    Recommendation: The Secretary of Defense should direct the Secretary of the Air Force to (1) treat the change as void by adjusting contract documents to reflect the reversion to the original 0/100 cost overrun sharing ratio and negotiate a method for allocating cost overruns between basic ECP0006 and changes, or (2) negotiate an equitable consideration from the contractor in return for the change to a 70/30 cost overrun sharing ratio on the basic ECP0006.

    Agency Affected: Department of Defense: Department of the Air Force

 

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