Summary: Pursuant to a congressional request, GAO reviewed eight dual-source contracts the Department of Defense (DOD) awarded for weapon systems procurement to determine whether contracting officers had a sound basis for negotiating fair and reasonable contract prices.
GAO found that: (1) DOD contracting officers used such safeguards as expert auditors, price analysts, engineers, and production specialists, as well as legislative requirements, to ensure that noncompetitive contracts were fair and reasonable; (2) after determining that contracting officers improperly exempted $8.8 billion of noncompetitive dual-source contracts from pricing safeguards, DOD issued a December 1988 policy memorandum requiring officers to make adequate price competition determinations on a case-by-case basis and to exercise deliberation and thorough review; and (3) the subsequent revision to the DOD Federal Acquisition Regulation (DFAR) Supplement to implement that policy presumed that adequate price competition normally existed on dual-source procurements, did not recognize the importance of obtaining and reviewing cost data, and encouraged contracting officers to make dual-source awards solely on the basis of price analysis. GAO also found that contracting officers: (1) accepted four of the eight reviewed contracts as fair and reasonable, but could have reduced three of the contracts by a total of $28.9 million if they had obtained insight into the basis of contractors' proposed prices; and (2) properly employed noncompetitive pricing safeguards in the other four contracts, resulting in reductions totalling more than $30 million.
