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Highlights

GAO was asked to comment on proposed revisions to sections of the Defense Acquisition Regulations which relate to economic price adjustment policies under fixed price contracts. Among other things, these revisions add a contract clause for the cost index method of economic price adjustment. Although the cost index method is permitted by existing regulations, there is currently no prescribed contract clause for the use of this method. In a recent report, GAO noted a problem with the Navy's use of this method and found that shipbuilding contractors were receiving higher escalation costs than they were entitled to by delaying the computation of the escalation costs. The contract clause prescribed by the proposed regulation revisions did not address this problem. GAO believes that the regulation and the proposed cost index method clause should be revised to protect against such abuses.