Contract Pricing

Defective pricing occurs when a contractor negotiating a price for a contract anticipated to be over a specified dollar value does not submit accurate, current, or complete data about the costs included in its proposal, thus increasing the contract price. If defective pricing is discovered, the government has the right to recover the amount of the overcharge. In May 1992, GAO reported that the amount of potential defective pricing on Defense Department (DOD) contracts as reported by the Defense Contract Audit Agency had dropped for the first time in years. This briefing report discusses the reasons for the reduction and any further declines that might be occurring. GAO focuses on the three-year period beginning in fiscal year 1990--the peak of the reported defective pricing--and ending in fiscal year 1992--the latest year for which data were available.

GAO found that: (1) the Defense Contract Audit Agency (DCAA) reported that defective contract pricing declined from $919.3 million in fiscal year (FY) 1990 to $273.4 million in FY 1992; (2) there was a decline in reported defective pricing because the number of contracts available for DCAA to audit declined, new or revised DCAA audit procedures reduced the dollar amounts reported as defective pricing, and improved cost-estimating systems enabled DOD contractors to provide more accurate estimating information; (3) the improved contractor cost-estimating systems reduced the risk of defective pricing; and (4) DCAA believes that the decline in defective pricing was due more to the low volume of DOD contracting and audit activity rather than contractors' improvements.