Contracting Officers' Explanations for Price Increases on 125 Spare Parts

In response to a congressional request, GAO obtained explanations from Department of Defense contracting officers for price increases on 125 spare parts and reviewed some cost and pricing data for two contractors.

Contracting officers cited many reasons for the price increases, including: (1) inflation; (2) differences in quantity purchased; (3) events that occurred during elapsed time between procurements; and (4) the markups of small businesses on spare parts purchased in small business set-aside programs. GAO found that most parts showed a lower price increase after the effects of inflation were removed. For many parts, there was a significant change in the quantity ordered and a long time period between the old and new procurements. GAO also found that the contractor for 46 of the 125 parts: (1) increased its prices because it purchased material from subcontractors in excess of the government's needs and transferred some production facilities; and (2) overpriced some of the parts but voluntarily refunded the overpricing and revised its contracts and pricing procedures to correct the overpricing conditions. Another major contractor increased its prices because of increases in the costs of labor and material and accounting system changes. In addition, GAO found that: (1) problems existed with price analysis and procurement due to the large volume of contracts to be processed; and (2) in approximately 20 percent of the awards competition determined the price. The procurements which GAO reviewed were made before certain corrective actions were taken, and GAO expects the price analysis of spare parts to improve if these corrective actions are properly implemented.