Contract Pricing:

Material Prices Overstated on Standard Missile and Phalanx Systems

NSIAD-87-31: Published: Feb 11, 1987. Publicly Released: Feb 11, 1987.

Additional Materials:


Paul F. Math
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As part of a nationwide review, GAO examined subcontract pricing on five prime contracts for the production of the Standard Missile System and the Phalanx Weapon System to: (1) determine whether the contractor complied with the Truth in Negotiations Act in providing accurate, complete, and current pricing data; and (2) assess whether Navy contracting officers implemented subcontract pricing requirements designed to ensure the negotiation of fair and reasonable prices.

GAO found that: (1) the contractor failed to disclose accurate, complete, and current pricing information for 14 of the 66 subcontract estimates before concluding contract negotiations; (2) the Navy contracting officers did not obtain evaluations from the contractor on 21 of 23 major noncompetitive subcontract price proposals for use in contract negotiations; and (3) the contractor overstated contract prices by about $1.9 million, including overhead and profit.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Collection made through contract modification for all five overpriced contracts was identified.

    Recommendation: The Commander, Naval Sea Systems Command, should use the results of the GAO review as a basis for initiating action to recover funds from the contractor.

    Agency Affected: Department of Defense: Department of the Navy: Naval Sea Systems Command

  2. Status: Closed - Implemented

    Comments: The contractor revised its procurement department instructions to provide for tracking price proposal submissions and the submission of written analyses to the contracting officer. NAVPRO subsequently told the contractor of the need to submit cost/price analyses for use in prime contract price proposal evaluations and stressed that compliance would be monitored closely.

    Recommendation: The Commander, NAVSEA, should take action to obtain recovery of funds from the contractor.

    Agency Affected: Department of Defense: Department of the Navy: Naval Sea Systems Command


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