Contract Pricing

Competitive Subcontract Price Estimates Often Overstated Gao ID: NSIAD-91-149 March 20, 1991

Pursuant to a congressional request, GAO analyzed the subcontract costs negotiated in four Department of Defense (DOD) contracts awarded to a single firm.

GAO found that: (1) the four DOD contracts were overpriced by about $8.9 million because the contractor's estimates for 66 subcontracts were not accurate or reliable; (2) the contractor included $44 million for the 66 subcontracts, but after soliciting subcontract prices to support its proposals, resolicited prices to award the subcontracts; (3) the resolicitation resulted in prices on 55 subcontracts that were $10.4 million lower than initially proposed; (4) DOD accepted the contractor's initially proposed prices as fair and reasonable because the contractor informed officials that it based prices on competitive bidding; (5) other defense contractors proposed subcontract prices for which they subsequently obtained substantial price reductions; (6) one study found that contractors proposed prices for 13 subcontracts that they presented as based on competitive bidding but subsequently negotiated prices that were about $3 million less; and (7) the government has not realized the benefits to be gained through competition, since many prime contractors actually obtained significantly lower subcontract costs than they included in their proposals.

Recommendations

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