Overhead Costs

Defense contractors continue to bill the federal government for millions of dollars in questionable "overhead" costs each year, including liquor, overseas trips, golf outing, and baseball season tickets. GAO reviewed eight defense contractors: six small contractors with annual government sales ranging from $11 million to $107 million and two major contractors each with annual government sales topping $1 billion. GAO found that all eight contractors had included unallowable costs in their overhead claims. For example, in addition to nearly $1 million in costs identified by the Defense Contract Audit Agency at the six small contractors, GAO identified another $2 million in overhead costs that were either expressly unallowable or questionable. GAO believes that the government needs to clarify its regulations on such costs as entertainment and employee morale and welfare, look into capping the expenses that contractors can charge for certain overhead costs, and buy more commercial products as a way to move from cost-based contracting toward market-determined prices.