Navy Contracting

Cost Overruns and Claims Potential on Navy Shipbuilding Contracts Gao ID: NSIAD-88-15 October 16, 1987

Pursuant to a congressional request, GAO reviewed 22 selected Navy shipbuilding contracts to determine the effects of increased competition, focusing on: (1) whether the Navy can execute the contracts within the funding appropriated; (2) the status of current and future claims against the government; (3) the actions that the Navy is taking to address current and anticipated claims; and (4) whether current staffing levels are providing effective contract oversight.

GAO found that the Navy: (1) realized favorable bid prices from increased competition for its shipbuilding contracts; (2) is currently projecting cost overruns of about $1.413 billion over target costs on 19 contracts; (3) is required to pay at least half of these overruns up to a maximum ceiling price; and (4) has sufficient program account funds to cover its portion of most of the cost overruns, but anticipates submitting reprogramming requests to cover estimated overruns for three programs. GAO also found that: (1) overruns typically resulted from shipbuilders' decisions to cut prices to make low competitive offers for Navy contracts; (2) this highly competitive bidding has continued on more recent awards and could have future cost implications for both the shipbuilders and the Navy; and (3) the Navy authorized additional staff to handle contract monitoring.

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