Navy Contracting

GAO reviewed the status of two SSN-688 submarine contracts to ensure that: (1) the funds authorized in a 1978 claims settlement were used in connection with the two contracts; and (2) the contractor did not use the funds to realize any profit on the contracts.

GAO found that: (1) funds provided under the 1978 settlement were only being used in connection with the specified contracts; (2) the contractor had written off losses on the contracts amounting to $487.9 million since the settlement in 1978; (3) the contractor had absorbed $359 million in contract losses through reduced progress payments; (4) the contractor had absorbed 100 percent of the contract cost overruns as required under the cost-sharing provision of the claims settlement; and (5) the contractor had delivered all 18 submarines. GAO also found that: (1) a subcontracting official was convicted of paying kickbacks to two former contractor officials around the time of the 1978 claims settlement, but it could not determine whether any of the identified kickbacks were associated with the settlement contracts; (2) although no actions have been brought against the contractor, the government is seeking to recover more than $1.8 million of the kickbacks; and (3) pursuant to an agreement between the contractor and the Navy, the contractor agreed that it would segregate the costs relating to fraud investigations and, if such costs were determined to be unallowable, it would repay the costs plus interest.