Review of an Allegation That a Firm Incurred Unnecessary Test Costs on Cost-Type Contracts

GAO was asked to investigate an allegation that a contractor had a disregard for costs that were unnecessarily incurred and passed on to the Government on cost-type contracts. The specific allegations were that the firm: (1) incurred costs of more than $20,000 for unnecessary and duplicative tests on the same purchase orders; (2) paid vendors on different purchase orders for tests on identical parts from the same production lots; and (3) did not take action on suspected duplicate costs, when cost-type contracts were involved, because the Government was absorbing the costs.

GAO found that the contractor did incur test costs of about $20,000, and GAO believed that these tests were unnecessary. However, the tests were required by the procurement activity and were performed by a subcontractor. A lack of clarity in the specifications caused the purchase of unnecessary quality conformance tests. Thus, neither the contractor nor the subcontractor received undue profits from these tests. Contrary to the allegation, the contractor did not pay subcontractors on different purchase orders for identical tests on parts from the same production lots. Contrary to an additional allegation, the contractor has tried, in several instances, to reduce test costs on cost-type contracts. On numerous occasions, the contractor took actions that resulted in significant savings to the Government. In addition, GAO did not believe that the unnecessary purchase of tests is being required in other contracts with the contractor.