Contract Management

Recovery auditing is a process that identifies and collects overpayments made to vendors. This report assesses the Defense Department's (DOD) progress in (1) recovering overpayments and the reasons for any delays and (2) expanding the use of recovery auditing. Since the program began in 1996, the Defense Supply Center has collected $5.3 million of the $17.9 million in overpayments. The Supply Center has written letters to vendors demanding payments of an additional $4 million and it continues to negotiate with other vendors to settle disputed payments. The collection process has proceeded slowly in part because of the time and effort required to review disputed claims. In particular, the Supply Center and vendors disagree over the interpretation of contract provisions that require vendors that sell brand-name products to guarantee that prices offered to the government are as good as those offered to their most favored customers. Thirty-four of the 59 vendors that have received letters demanding payment have appealed to the Armed Services Board of Contract Appeals. DOD is expanding its use of recovery auditing. Since June 1999, six DOD agencies have contracted for recovery audit services, and a seventh is planning to do so soon. To minimize disputed claims, GAO recommends that DOD examine the need to clarify price warranty provision in its contracts.

GAO noted that: (1) since the program began in 1996, the Defense Supply Center has collected $5.3 million of the $17.9 million in overpayments it now recognizes as valid; (2) the Supply Center has written letters to vendors demanding payments of an additional $4.0 million and continues to negotiate with other vendors to settle disputed payments; (3) the collection process has proceeded slowly in part because of the time and effort required to review disputed claims; (4) in particular, the Supply Center and vendors disagree over the interpretation of contract provisions that require vendors who sell brand-name products to guarantee that prices offered to the government are as good as those offered to their most favored customers; (5) 34 of the 59 vendors who have received letters demanding payment have appealed to the Armed Services Board of Contract Appeals; (6) DOD is expanding its use of recovery auditing; and (7) since June 1999, six Defense agencies have contracted for recovery audit services, and a seventh is planning to do so soon.

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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