Review of Selected Negotiated Contracts Under the F-16 Multinational Aircraft Program

GAO reviewed 20 contract actions, valued at over $3 billion, associated with the F-16 multinational aircraft program. GAO objectives were to determine if prices negotiated by the Department of Defense (DOD) were reasonable, identify the causes of any overpricing, and suggest corrective actions.

GAO found overpricing of about $14.2 million. About $6 million of this amount was attributable to subcontract price options which may be subject to recovery under the Truth in Negotiations Act. When the prime contract cost sharing ratio for overruns was reduced from 100 percent to 70 percent, no adjustment was made in the contractor's profit allowance even though it had received an additional $51 million to assume full risk for overruns. This could result in the contractor's receiving an unintended reimbursement of about $13.3 million. All nonrecurring inplant materials costs are being charged to the Air Force program. Since the contractor supplies inplant materials to its European subcontractors, the European participating government (EPG) program should bear a pro rata share of these costs. The Air Force and the prime contractors and subcontractors involved were generally successful in negotiating reasonable prices. The overpricing resulted from situations in which sufficient cost data were available to the contracting officer to have supported the negotiation of a lower price; or accurate, complete, and current data were not made available to the contracting authority, resulting in overpricing that was potentially subject to downward adjustment. Essentially all of the potential defective pricing GAO identified resulted from failure to audit the vendors' proposed materials costs. The remaining overpricing resulted from poor procurement practices. Similar overpricing may exist in $896 million worth of subcontracts which GAO did not include in the review.

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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