GAO Views and Position on Profit Limitations and the Vinson-Trammell Act

GAO was asked the following questions concerning the Vinson-Trammell Act profit limitations: (1) whether GAO has performed any studies of Department of Defense (DOD) contractor profits; (2) how GAO views the adequacy of each of the various supposed surrogates, such as the Truth in Negotiations Act or the Cost Accounting Standards Act, to protect fully against excess profits; (3) whether the GAO position on replacing the Vinson-Trammell Act remains the same as it was last year; and (4) if GAO still believes that the Vinson-Trammell Act should be replaced, what form the replacement statute should take.

GAO responded that: (1) it has not made any studies on DOD contractor profits since 1971, when it reported that profits were significantly lower on DOD work than on comparable commercial work; (2) both of the acts represent improvements in the contracting process unavailable at the time of enactment of the Vinson-Trammell Act, but they do not provide any means of controlling profits when the vendor is not in a price competitive environment and seeks to exploit its position; (3) it still believes that the Vinson-Trammell Act is outdated, inequitable, and unworkable, but the act provides an existing framework that could be updated to correct its objectionable defects. If the act is updated, GAO suggests that the following guidelines be considered: (1) expand coverage to include all DOD items, not just ships and aircraft; (2) limit its application to completed noncompetitive negotiated contracts and first-tier subcontracts; (3) increase the dollar threshold from $10,000 to at least $5 million; (4) compute profit on the basis of a predetermined return on investment rather than on a percentage of contract prices; (5) adopt Section XV, Defense Acquisition Regulation cost rules; (6) provide specific criteria for offsetting losses against profits; (7) simplify reporting; (8) permit audit sampling of profit reports to monitor compliance; and (9) provide stiff administrative penalties for contractors who do not comply with reporting requirements.