GAO's Review of Contractor Cost Estimating Systems

T-NSIAD-87-25: Published: Apr 8, 1987. Publicly Released: Apr 8, 1987.

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GAO discussed its evaluation of defense contractor cost-estimating systems to determine whether defense contractors were developing and proposing accurate and reliable estimates for negotiating Department of Defense (DOD) contracts. GAO noted that, although DOD relies on price proposals that contractors' estimating systems generate, there is no requirement for contractors to maintain adequate systems. GAO found that, of 247 contractors it questioned: (1) 32 did not have written estimating policies and procedures; (2) 67 of those with policies and procedures had inadequate procedures for selecting methods and techniques to calculate estimates; (3) 72 had inadequate procedures for documenting the rationale and support for estimating judgments; and (4) 33 had inadequate procedures to review cost estimates for completeness, accuracy, and compliance with company policy. GAO also found that contractors frequently did not: (1) provide accurate evaluation results to contracting officers; (2) evaluate major subcontracts before prime contract negotiations; and (3) adjust proposed vendor quotations to reflect reductions or disclose information on past reductions to contracting officers. GAO believes that the Federal Acquisition Regulation amendments that the Air Force and the Defense Contract Audit Agency proposed to establish contractor requirements would be a starting point towards defining an acceptable estimating system.

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