Improperly Subsidizing the Foreign Military Sales Program--A Continuing Problem

Department of Defense (DOD) sales of articles and services to foreign governments have grown from $953 million in fiscal year (FY) 1970 to $13.4 billion in 1978. DOD has been improperly subsidizing the foreign military sales program by failing to recover an estimated $370 million during the past 6 fiscal years for quality assurance services performed by U.S. government employees on items sold to foreign governments. Since 1973 the government-provided quality assurance services have been specifically identified in Defense pricing instructions as a recurring support cost to be recovered.

Contracting officials in the military services had no standard system for writing prime contracts that would readily identify items for foreign sales. It would be expensive and cumbersome to track foreign sales requirements through all the subcontracts and purchase orders involved in the production of major items such as tanks, planes, or missiles. Between FY 1976 and 1978 some prime contracts did identify foreign sales items costing about $13 million for quality assurance services. When the regional contract administration services submitted the billings to the military services, however, the billings were rejected on the ground that they did not provide sufficient detailed information to bill the countries. The Defense standard sales contract provides that adjustments may be made to estimated costs that are not commensurate with actual costs, but there is a lack of personnel at the DOD office to make sure that pricing policy is effectively implemented.

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.

Director: John F. Simonette Team: General Accounting Office: Financial and General Management Studies Division Phone: (202) 275-1581