Contract Pricing

GAO reviewed a subcontractor's pricing procedures under a multi-year contract to supply fan blades for the Air Force's B-1 Bomber to determine whether the subcontractor included unallowable costs in its proposal to the prime contractor.

GAO found that: (1) the subcontractor's proposal included certain unallowable overhead costs, such as expenses associated with a yacht, a ski lodge, entertainment, product exhibitions, and contributions and donations; (2) the subcontractor maintained that some of the expenses were allowable because they were either employee benefit expenses that it misclassified or they benefited the government; (3) the contractor could not produce a written policy for employee use of the facilities, nor could it document that contract personnel used them and for what purpose; and (4) since the prime contractor did not identify any of the unallowable costs, it included them in the pricing data it submitted to the Air Force. GAO believes that: (1) the contractor overpriced the contract by about $190,646, including overhead and profit; (2) most of the subcontractor's overhead expenses were unallowable; and (3) the subcontractor may have improperly charged the government in other subcontract purchases for the B-1.