Contract Pricing: Recurring Issues and the Role of the Defense Contract Audit Agency

GAO discussed: (1) recurring systemic defense contract management issues; and (2) the Defense Contract Audit Agency's (DCAA) role in such issues. GAO noted that: (1) defense-related contract overpricing is significant and widespread; (2) contract overpricing results primarily from inaccurate, incomplete, and out-of-date cost or pricing data and unreliable cost-estimating systems; (3) because of the large number of contracts and subcontracts that are subject to DCAA audit for defective pricing, DCAA allocates its resources based on its assessment of risk; (4) DCAA is unaware of many subcontracts subject to audit, primarily because of the incomplete data sources DCAA uses to develop its subcontract inventory and because DCAA field offices do not routinely pass subcontract information on to other field offices; (5) DCAA does not perform a sufficient number of operations audits, which can reduce contract costs and waste; (6) DCAA estimating systems reports are weak and do not always adequately demonstrate and emphasize to administrative contracting officers and contractors the need to correct identified estimating deficiencies; (7) the DCAA backlog of incurred cost audits has decreased from its peak of $170 billion at the end of fiscal year (FY) 1989 to about $150 billion at the end of FY 1991; and (8) DOD plans to include DCAA in the Defense Business Operations Fund in FY 1994.