Summary: In response to a congressional request, testimony was given on the results of a GAO study of Department of Defense (DOD) contracting activities, specifically: (1) subcontract pricing; (2) surveillance of contractor estimating systems; and (3) overhead settlements. GAO found a number of areas where improvements are needed for DOD to have greater assurance that contract prices are fair and reasonable and also found that subcontract pricing safeguards were not effectively implemented because: (1) prospective subcontract pricing data were not obtained; (2) contracting officers did not obtain prime contractor or government evaluations of prospective subcontractor prices; (3) government contracting officers used subcontract pricing techniques that were not as effective as subcontract proposal evaluations; (4) prime contractors achieved substantial price reductions in subcontract negotiations in excess of prime contract price reductions; and (5) prime contract prices were increased because contractors failed to disclose updated subcontract pricing information to the government. GAO also found numerous estimating deficiencies which contributed to questionable costs, including: (1) untimely resolution of deficiencies; (2) a lack of a clear definition of an acceptable cost estimating system; (3) an unclear definition of the responsibility for resolving estimating deficiencies; and (4) a need for improvement of contract auditor surveillance activities. Finally, GAO found that regulations regarding allowable overhead costs are not clear, and actions are needed to improve overhead cost settlements.
