Summary: In response to a Department of Defense Appropriation Authorization Act of 1979 requirement, GAO presented its third report on the status of two contracts awarded by the Navy to Litton Systems, Inc., Ingalls Shipbuilding Division.
GAO found that the funds provided under P.L. 85-804 were being used only in connection with the specified contracts. An accumulation of earned but unpaid construction costs and other funds retained by the Navy and potential unallowable costs could provide Litton with considerable funds for use on other contractor projects. In addition, GAO found that Litton's records reflected a total combined profit on the two contracts. When profit on change orders and the incentive fee for ship silencing are considered, the total combined profit is projected to about $15 million. This projection is calculated after the complete recovery of the $200 million loss absorbed at the settlement. In the opinion of GAO, the payment of this profit by the Navy would be contrary to the limitations of the Department of Defense Appropriation Authorization Act of 1979. Further, GAO found that all work under the contract is nearly completed, and the final settlement and closeout process was underway.
