Air Force C-130 Contract Price Is Overstated and Proper Action Has Not Been Taken To Improve Lockheed's Cost Accounting and Estimating Systems

PSAD-80-69: Published: Sep 4, 1980. Publicly Released: Sep 4, 1980.

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GAO reviewed the pricing of the Air Force contract awarded to the Lockheed Georgia Company in 1978. The contract, for eight C-130 Hercules airplanes and technical data for the Air National Guard, was negotiated at a firm-fixed price.It was selected as part of a nationwide review of the pricing of noncompetitive prime contracts awarded by the Department of Defense. The objectives were to determine: (1) if laws, regulations, and procedures were followed in negotiating the contract price; and (2) whether the contract price is reasonable in relation to the cost or pricing data available to the contractor at the time of contract negotiations.

GAO found that the negotiated contract price was overstated by more than $4 million because proposed costs for production material were not based on current, complete, and accurate cost or pricing data and because the most representative experience available did not support proposed costs for production labor and development labor. Proposed labor costs were overstated by as much as $2,949,699 because the most representative experience available supported, significantly, lower manufacturing labor costs. Also, it was found that the Air Force Plant Representative Office (AFPRO) had not adequately responded to the Defense Contract Audit Agency's reports of weaknesses in Lockheed's accounting and estimating systems.

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