Inadequate Controls over DOD Subcontracts Cost Government Millions of Dollars

GAO discussed Department of Defense (DOD) subcontracts, focusing on DOD vulnerability to inflated subcontract prices. GAO noted that: (1) subcontract costs often comprised more than 50 percent of prime contract costs; (2) subcontractor overpricing was frequent and pervasive; (3) DOD did not have direct management control over subcontracts because its contractual relationship was with the prime contractors, not the subcontractors; (4) subcontractors frequently did not disclose accurate, complete, or current cost pricing data; (5) administrative contracting officers had the authority to take whatever action necessary to ensure that contractors correct unacceptable systems; (6) regulations required contractors to evaluate noncompetitive subcontracts and include results of evaluations as part of their contract proposals; (7) prime contractors used one set of competitive subcontract prices to support their bids, but subsequently solicited and obtained significantly lower prices for negotiating their subcontracts; and (8) defense subcontract pricing was highly vulnerable to fraud, waste, and abuse.