Supply Contract Terminations

Although unclaimed costs in individual defaulted contracts can be relatively small, in the aggregate they can be substantial because the General Services Administration (GSA) terminates hundreds of supply contracts annually for vendor default. Previous GAO work revealed that GSA continues to do business worth more than $1 billion with nearly 300 vendors who had histories of poor contract performance. Total expenses can mount up due to (1) the costs of acquiring, holding, and disposing of defective goods; (2) replacement product price increases when GSA has to pay higher prices to obtain replacement products; and (3) GSA administrative costs, such as staff time. Lack of management emphasis and complete, reliable data on the universe of defaulted contracts and associated costs have caused GSA to miss opportunities to pursue claims against defaulted vendors to recover costs. Also, poor claims administration has impaired GSA's ability to account for and collect on the amounts due on claims it does assess. Although GSA is trying to improve its management and oversight of the claims process, additional steps must be taken to better ensure that claims to recover costs linked to vendor default are identified, assessed, and collected.

GAO found that: (1) as of 1993, GSA had collected almost $1 million of the nearly $2 million in claims against vendors that defaulted on supply contracts; (2) 20 of the 40 contracts that were terminated between 1990 and 1993 experienced product price increases or increased administrative costs, and GSA did not attempt to recover the costs for the 20 contracts; (3) GSA does not emphasize the importance of assessing claims against vendors on defaulted contracts, lacks the resources or information necessary to pursue claims, and does not have adequate claims administration practices to quantify unclaimed replacement product costs, identify the extent of defective product costs, or project the total amount of unclaimed costs; (4) GSA needs to recover vendor default costs because the total amount of unclaimed costs is significant; and (5) GSA efforts to improve its collections against vendors in default include emphasizing the importance of assessing claims to its contracting officers and initiating actions aimed at improving its ability to monitor and collect the claims it assesses.

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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