Contract Pricing:

Status of Defective Pricing

NSIAD-92-184FS: Published: May 21, 1992. Publicly Released: Jun 4, 1992.

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Pursuant to a congressional request, GAO analyzed defective pricing audits performed by the Defense Contract Audit Agency (DCAA) to determine: (1) the amount of potential defective pricing DCAA identified in contract audits; (2) the risk of defective pricing in smaller contracts; (3) how frequently DCAA identified defective pricing; and (4) the extent to which defective pricing was concentrated among a small number of contractors.

GAO found that: (1) for both prime contract and subcontract audits, DCAA identified defective pricing totalling $3.67 billion for fiscal year (FY) 1987 through FY 1991; (2) DCAA reported that defective pricing increased from $574.5 million in FY 1987 to $896.6 million in FY 1990, although defective pricing declined to $730.7 million in FY 1991; (3) subcontract defective pricing increased from $264.2 million in FY 1990 to $484 million in FY 1991, which accounted for 66.2 percent of the defective pricing DCAA reported; (4) for FY 1987 through FY 1991, subcontract audits accounted for 16.2 percent of all contract dollars DCAA audited, while subcontract defective pricing accounted for 37.1 percent of the total defective pricing DCAA found; (5) smaller subcontracts presented a more significant risk of defective pricing than did larger subcontracts; (6) the frequency with which DCAA identified defective pricing has declined steadily, from 48.9 percent in FY 1987 to 21.1 percent in FY 1991; (7) the $165.9-million decrease in defective pricing reported by DCAA between FY 1990 and FY 1991 was primarily due to changes in the total dollar value of the contracts DCAA audited and the frequency with which DCAA found defective pricing; and (8) defective pricing was a more significant problem for a relatively small number of contractors, since less than 3 percent of the contractors accounted for 80 percent of the defective pricing reported by DCAA in FY 1991.

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