Contract Pricing

DOD's Use of the Truth in Negotiations Act Deterrents Could Be Increased Gao ID: NSIAD-94-7 October 25, 1993

The Defense Department (DOD) has not recovered most of the defective pricing uncovered by audits mainly because contracting officers (1) dismiss audits for errors, inconclusive evidence, and lack of reliance on the defective data during negotiations and (2) negotiate with contractors and settle for lesser amounts. In addition, interest on overpayments has not been fully charged in all instances, and the penalties have not been assessed. Further, settlements of defective pricing cases were late, involving a lengthy process with administrative burdens on both the government and contractors. DOD's tracking and reporting system was inaccurate, and it lacked information needed for oversight and management of the settlement process. These conditions diminish the deterrence needed to ensure that contractors and subcontractors comply with the law. Without adequate deterrence, contractors have little incentive to eliminate inflated price estimates and correct systemic pricing problems. In addition, the costly and burdensome process of identifying and settling defective pricing by the government and contractors will likely continue.

GAO found that: (1) in fiscal year 1992, DOD sustained 40 percent of its recommended price adjustments; (2) DOD has not recovered most overpayments because contracting officers ignore audits that do not support defective pricing determinations, and DOD settles with contractors for lesser amounts; (3) DOD has initiated actions to improve the accuracy of its contractor audits and increase recommended price adjustments; (4) DOD contracting officers have not effectively used deterrents or fully assessed interest charges and penalties on overpayments because of regulatory restrictions and differing interpretations; (5) DOD does not timely settle defective pricing cases because the lengthy settlement process places a heavy administrative burden on the government and contractors; (6) the DOD contract tracking and information system has inaccurate data due to reporting errors and lacks needed oversight and management information; and (7) the DOD Inspector General has recommended several changes to improve DOD contractor reporting.

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.

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