Pricing of a Contract Awarded to Raytheon

PSAD-79-82: Published: May 25, 1979. Publicly Released: May 25, 1979.

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A nationwide review was made of the pricing of negotiated noncompetitive contracts awarded by the Department of Defense. A contract awarded by the U.S. Army Missile Materiel Readiness Command (Mircom) to the Raytheon Company for 526 Improved Hawk ground-to-air defense missiles was selected for a study. The objective was to determine contract price reasonableness in relation to cost or pricing data available to the contractor at the time of contract negotiation. It appeared that the target cost of the contract was overstated by about $710,000 because certain cost or pricing data provided by the contractor were not accurate, complete, or current. This overstatement will result in approximately $300,000 of excess cost to the government. In addition, the contracting officer did not obtain adequate support from Raytheon for proposed maintenance and modification of tooling and test equipment costs. Although Raytheon maintained that all relevant data were made available for inspection to the Defense Contract Audit Agency (DCAA), there was no indication that DCAA or the contracting officer were informed that the information available for review could affect the proposal under negotiation. Mircom requested that a postaward audit of the contract be made by DCAA to determine if a defective pricing claim was warranted.

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