Pricing of a Contract With McDonnell-Douglas

PSAD-79-23: Published: Jan 26, 1979. Publicly Released: Jan 26, 1979.

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A review was made to determine the reasonableness of production raw material costs of $118,990,080 proposed by McDonnell-Douglas Corporation for the production of 132 F-15 and TF-15 aircraft, aerospace ground equipment, and data. Production material comprises 97 percent of the raw materials required for fabrication of the aircraft. The raw material cost was based on prior aircraft production cost, and the contractor adjusted this cost to reflect economic changes by updating the cost of a sample of 128 high value items from a representative aircraft.

The contractor did not use current data to update the cost of all sample items; therefore, incorrect economic adjustment factors were used to compute the estimated cost of production material. When GAO updated the cost of the 128 sample items and computed the economic escalation factors, there appeared to be a reasonable basis to reduce the contract price by more than $5 million.

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