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A review was conducted of the pricing of a Navy contract awarded to Lockheed Shipbuilding and Construction Co. for two submarine tenders and related items. The contract was a cost-plus-incentive-fee contract with a target price of over $252 million. The pricing provisions of the contract did not fully protect the interests of the government because they did not encourage the contractor to control costs during the performance of the contract. Unnecessary costs may have been borne by the government as a result. Although $16.2 million of proposed costs was not supported by cost or pricing data, the contracting officer accepted these costs in establishing a target price. The officer did not explain his reasons for allowing the unsupported costs. In addition, the contract target costs was overstated by about $437,000 because cost or pricing data provided by the contractor were not current, complete, and accurate. The Secretary of the Navy should provide a report setting forth actions that will be taken to prevent similar problems. The Navy should ensure that incentive provisions included in contracts continuously motivate contractors to minimize costs.

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