Payment of Air Force Aircraft Maintenance Contracts Violate Cost-Plus-a-Percentage-of-Cost Prohibition

PSAD-78-138: Published: Aug 22, 1978. Publicly Released: Aug 22, 1978.

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A recent GAO report about five aircraft maintenance contracts stated that there were violations of prohibitions against a cost-plus-a-percentage-of-cost (CPPC) system of contracting and recommended that excess payments be recovered after determination of what was allowable. The Air Force disagreed with these conclusions and recommendations, stating that rates used for overhead and profit in establishing firm prices were forward-pricing-rate agreements in accordance with regulations and that its pricing method did not violate CPPC prohibition since it did not involve profit or overhead as a contractually required predetermined percentage. The conclusions and recommendations of the previous report were upheld because rates for overhead and profit were established prospectively on a percentage basis and the rates remained unchanged; and results of the contract, rather than its technical form, determined violation of CPPC prohibition. Unless immediate action is taken to eliminate the CPPC system of contracting, exceptions will be taken to payments made to the contractor in excess of allowable amounts.

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