Contract Pricing: Improving Defense Management and Oversight

GAO discussed Department of Defense (DOD) contract pricing, focusing on DOD: (1) vulnerability to contract overpricing; and (2) efforts to address overpricing. GAO noted that: (1) DOD revised its regulations to require major contractors to establish, maintain, and disclose adequate cost-estimating systems; (2) the regulation also requires that the Defense Contract Audit Agency (DCAA), along with contract administration personnel, regularly audit the adequacy of contractor estimating systems; (3) although DCAA identification of defective pricing declined between 1987 and 1991, the amount of defective pricing that DCAA reports remains significant, particularly for certain contractors; (4) subcontractors pose a major risk for defective pricing, since DOD relies heavily on the prime contractor and the quality of its cost-estimating system to ensure reasonable subcontract prices; (5) as a result of changes in the way DCAA identifies high-risk contractors, some contractors may receive reduced audit coverage even though they may have a history of frequent and significant overpricing; (6) DCAA is unaware of many subcontractors subject to audit under the Truth in Negotiations Act; and (7) some DOD contracting officers are not ensuring that contractors correct problems that have led to overpricing, and information on high-risk contractors in the DOD audit follow-up system is inaccurate and incomplete.