Overpricing on Naval Nuclear Contract

GAO evaluated the reasonableness of prices negotiated for two fixed-price incentive contracts the Department of Energy's (DOE) Pittsburgh and Schenectady Naval Reactors Offices awarded for nuclear reactor cores.

GAO found that some of the contract costs were questionable because: (1) DOE allowed a price escalation clause for certain materials in one contract to allow for inflation, but the contractor purchased the materials earlier than expected at the original price; (2) DOE allowed a subcontract with one of the contractor's subdivisions that included interdivision profits of over $3 million; (3) DOE should have written a formal justification for allowing the interdivision profits since its actions were contrary to procurement regulations then in force; (4) the contractor based labor costs for uranium recovery on only the final year of contract performance rather than on the entire life of the contract, which resulted in over $300,000 in excess costs; and (5) the contractor made computational errors in determining the cost of special tooling and subcontracted work that resulted in excess costs of about $11,000. GAO believes that DOE should negotiate a price adjustment to recover the costs associated with the costing errors.