Contract Management:

DOD's Use of Recovery Auditing

NSIAD-00-134: Published: Jun 5, 2000. Publicly Released: Jul 6, 2000.

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Pursuant to a congressional request, GAO provided information on the Department of Defense's (DOD) use of recovery auditing, a process that identifies and collects overpayments made to vendors, focusing on DOD's: (1) progress in recovering overpayments and the reasons for any delays; and (2) use of recovery auditing.

GAO noted that: (1) since the program began in 1996, the Defense Supply Center has collected $5.3 million of the $17.9 million in overpayments it now recognizes as valid; (2) the Supply Center has written letters to vendors demanding payments of an additional $4.0 million and continues to negotiate with other vendors to settle disputed payments; (3) the collection process has proceeded slowly in part because of the time and effort required to review disputed claims; (4) in particular, the Supply Center and vendors disagree over the interpretation of contract provisions that require vendors who sell brand-name products to guarantee that prices offered to the government are as good as those offered to their most favored customers; (5) 34 of the 59 vendors who have received letters demanding payment have appealed to the Armed Services Board of Contract Appeals; (6) DOD is expanding its use of recovery auditing; and (7) since June 1999, six Defense agencies have contracted for recovery audit services, and a seventh is planning to do so soon.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: Contracts using price warranty provisions were transferred from the Supply Center to the Defense Commissary Agency. The Defense Commissary Agency held discussion with industry representatives and developed a new warranty clause. The new clause has been in use since January 2002.

    Recommendation: To minimize disagreements between DOD and vendors in the future, after the Armed Services Board of Contract Appeals rules on the appeals, the Secretary of Defense should examine the need to clarify price warranty provisions in its contracts.

    Agency Affected: Department of Defense


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