Government Contracting

The Defense Contract Audit Agency (DCAA) no longer plans to prepare an annual financial report on Independent Research and Development/Bid and Proposal (IR&D/B&P) programs. The proposed change to DOD regulations is vague on the specific type of financial data needed to ensure that IR&D/B&P expenditures remain within affordable levels. Without the statistical data found in earlier DCAA annual reports, the Pentagon will have little assurance that the program is being implemented as intended, objectives are being met, policies are being followed, and resources are being effectively used. Administrative costs are not likely to be significantly reduced as intended by recent legislation for two reasons: (1) the government will still be required to determine the reasonableness of IR&D/B&P costs and (2) contractors are still expected to provide the government with technical information to monitor the defense technology base. DOD has already streamlined the data to be provided and is trying to eliminate the multiple technical databases.

GAO found that: (1) DOD has historically negotiated a ceiling for contractors' IR&D/B&P costs and conducted extensive technical reviews of their programs, and the Defense Contract Audit Agency (DCAA) prepared an annual financial report; (2) recent legislation provides for gradually removing those limitations, and DCAA informed DOD that it no longer plans to prepare the financial report; (3) to implement the legislation, DOD proposed regulations for an annual DOD-wide report on the IR&D/B&P program and for contractors to provide brief technical descriptions of their IR&D/B&P projects; (4) the proposed regulations are vague as to statistical information requirements, and without the DCAA annual report, DOD managers will not have sufficient data to monitor ceilings, assess the budgetary impact of removing ceilings, identify overall expenditure increases, or compare contractors' IR&D and B&P expenditures; (5) the recent legislation is not likely to meet its intentions to reduce administrative costs since the government must still determine the reasonableness of IR&D/B&P costs and since contractors must still provide the government with technical information to monitor the defense industrial base; and (6) although DOD maintains a database to reflect information on contractors' IR&D projects, the military services did not consider the database sufficient or timely and created their own databases.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Team: Phone: