Contract Pricing:

Overpricing of Peacekeeper Missile Subcontracts

NSIAD-88-127: Published: Mar 28, 1988. Publicly Released: Mar 28, 1988.

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GAO reviewed subcontract pricing under two Air Force Peacekeeper Missile engine contracts to determine whether the prime contractor complied with the Truth in Negotiations Act in evaluating proposed subcontract prices.

GAO found that: (1) the prime contractor overstated subcontract prices by $995,353 and $176,308, respectively, because it did not ensure that subcontract pricing data were accurate, complete, and current; (2) overstatements included materiel cost estimates, cost escalation factors, and direct labor and indirect expense rates; (3) the prime contractor evaluated proposed subcontract prices after the completion of prime contract negotiations, and used the results to negotiate substantially lower prices with the subcontractor; and (4) the Air Force should recover the overstated amounts from the prime contractor.

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