Contract Pricing: DOD Management of Contractors With High-Risk
Cost-Estimating Systems (Letter Report, 07/19/94, GAO/NSIAD-94-153).

GAO evaluated the Defense Department's (DOD) efforts to ensure that
high-risk contractors reduce the government's vulnerability to contract
pricing.  GAO found that contractors' performance in correcting their
significant cost-estimating system deficiencies has been mixed.
Although 19 of the 30 contractors GAO reviewed had corrected all their
major cost-estimating system shortcomings, the remaining 11 contractors
had deficiencies that had been outstanding an average of 3.8 years.  Not
correcting estimating deficiencies promptly creates a variety of
problems for DOD, including increased costs and delays in contract
awards. Although DOD contracting officers have used various approaches
to encourage contractors to correct their cost-estimating system
deficiencies, contracting officers have not resorted to the more
stringent measures available, such as reducing progress payments or
recommending nonaward of future contracts.  GAO found that Defense
Logistics Agency (DLA) oversight of contracting officers is
important--especially where deficiencies are longstanding--for two
reasons.  First, contracting officers have considerable latitude in
deciding how to obtain corrective action.  Second, DOD does not specify
criteria used to determine timeliness of corrective actions. Although
contracting officers need flexibility in working with contractors, DOD
also needs to periodically review the adequacy of contracting officer
actions and ensure that estimating system deficiencies are promptly
corrected.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-94-153
     TITLE:  Contract Pricing: DOD Management of Contractors With 
             High-Risk Cost-Estimating Systems
      DATE:  07/19/94
   SUBJECT:  Defense procurement
             Cost accounting standards compliance
             Cost analysis
             Contracting officers
             Contractor responsibility
             Department of Defense contractors
             Risk management
             Future budget projections
             Procurement regulation
             Contract noncompliance

             
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