Navy Contracting

In response to a congressional request, GAO examined the Navy's fiscal year (FY) 1986 contract award for the construction of four SSN-688 nuclear attack submarines, focusing on: (1) whether the proposed bid prices were realistic; (2) what the cost and national security consequences would be if the prices were not realistic; (3) what assurances, if any, the contractor gave the Navy that it would construct the submarines within contract prices; and (4) how the Navy will monitor actual contract costs.

GAO found that: (1) the Navy's analysis of the contractors' proposed prices showed that the awardee's price compared favorably with its competitor's price and with prior years' prices; (2) the awardee's FY 1986 contract price was understated and did not reflect estimates indicating that the construction cost was likely to be higher; and (3) the awardee's FY 1985 contract price for one submarine was not excessively high. GAO also found that: (1) the Navy will probably not obtain the submarines within the target price of $1.03 billion, since the contractor and its competitor have overrun or are overrunning their target costs on SSN-688 construction; (2) problems with the submarines' new combat system could adversely affect their cost and delivery; and (3) the Navy is monitoring the contract under its cost-monitoring plan. GAO concluded that: (1) the Navy should maintain close surveillance over the contractor's cost, schedule, and performance; and (2) the cost-monitoring plan should provide the Navy adequate review of the contractor's operations and contract performance.