Contract Pricing

Pursuant to a congressional request, GAO reviewed contract auditors' and administrative contracting officers' compliance with Department of Defense (DOD) regulations for reviewing contractors' cost estimating systems, focusing on whether: (1) auditors and contracting officers jointly reviewed the estimating systems as a team effort; (2) estimating system reports prepared by the Defense Contract Audit Agency (DCAA) included appropriate recommendations for disapproving all or part of contractor systems; and (3) DOD contracting officers followed the prescribed procedures for correcting identified deficiencies.

GAO found that: (1) DOD established more stringent requirements governing contractors' cost estimating systems to reduce the potential for inflated contract prices due to overstated estimates of subcontract, labor, and other costs on noncompetitive contracts; (2) the revised regulations required DCAA to lead a team effort, with the contract administration office, to regularly review the adequacy of each contractor's estimating system and recommend approval or disapproval of the system; and (3) the regulations also required auditors and contracting officers to monitor contractors' progress in correcting identified deficiencies. GAO also found that: (1) contract administration personnel did not participate in 10 of 16 estimating system reviews that GAO investigated; (2) although DCAA significantly increased the time it devoted to reviewing estimating systems, its reports to contracting officers did not fully meet the requirements of the revised regulations; (3) while all 16 estimating system reports identified potentially significant deficiencies, only 1 report recommended disapproval of all or part of the system; (4) DCAA auditors reported that they were unaware of the requirement to recommend system disapproval; (5) administrative contracting officers did not provide 10 of the 16 reports to contractors for comment and correction of deficiencies; and (6) for 12 of the 16 reports, contracting officers did not determine whether the deficiencies required correction or warranted system disapproval or the adequacy of contractors' proposed corrections.