Pricing of Northrop Corporation Contract F33657-74-C-0041

A fixed-price incentive contract awarded to a corporation for development of two F-5F aircraft was examined to determine the reasonableness of the contract price in relation to supporting cost data and whether legislative requirements were implemented. The contract included a clause which permits the contracting officer to reduce the contract price if it was increased by a significant sum because the certified cost or pricing data was not current, complete, and accurate.

The Corporation proposed $4,242,000 for production material and purchased parts primarily on the basis of vendor price quotations and prior procurement history. GAO found that proposed and negotiated costs were higher than indicated by available data prior to contract negotiations. These included amounts of $795,791 for the environmental control system, $49,885 for fire control radar, and $80,260 for the canopy. Overstated costs included applicable add-on pricing factors and profit. Proposed and negotiated overhead rates were also higher than indicated by data. There was no evidence that the contractor disclosed current, complete, and accurate cost or pricing data prior to negotiations. The target price of the contract was found to be overstated by a total of about $3 million.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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