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Defense Contractor Cost Estimating Systems

NSIAD-88-7: Published: Jan 5, 1988. Publicly Released: Mar 4, 1988.

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In response to a congressional request, GAO reviewed selected contractors' practices to determine whether they were developing and proposing accurate and reliable estimates for negotiating noncompetitive Department of Defense (DOD) contracts.

GAO found that: (1) 13 percent of the 247 major defense contractors did not have written estimating policies or procedures; (2) 25 percent of those with written policies and procedures did not have procedures for one or more major estimating tasks; (3) some contractors developed estimates without any analytical support or consideration of historical costs; (4) contractors did not always have procedures for comparing estimates to actual performance costs to assess their accuracy and reliability; (5) some contract prices were higher because of unidentified and unresolved weaknesses during contract negotiations; and (6) some contractors have revised their estimating procedures to correct identified weaknesses. GAO also found that DOD: (1) improved its regulations to require contract administration and audit personnel to jointly review contractor estimating systems at least every 3 years; and (2) provided improved guidance on estimating-systems reviews to its field offices.

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