Summary: Pursuant to a congressional request, GAO analyzed the subcontract costs negotiated in four Department of Defense (DOD) contracts awarded to a single firm.
GAO found that: (1) the four DOD contracts were overpriced by about $8.9 million because the contractor's estimates for 66 subcontracts were not accurate or reliable; (2) the contractor included $44 million for the 66 subcontracts, but after soliciting subcontract prices to support its proposals, resolicited prices to award the subcontracts; (3) the resolicitation resulted in prices on 55 subcontracts that were $10.4 million lower than initially proposed; (4) DOD accepted the contractor's initially proposed prices as fair and reasonable because the contractor informed officials that it based prices on competitive bidding; (5) other defense contractors proposed subcontract prices for which they subsequently obtained substantial price reductions; (6) one study found that contractors proposed prices for 13 subcontracts that they presented as based on competitive bidding but subsequently negotiated prices that were about $3 million less; and (7) the government has not realized the benefits to be gained through competition, since many prime contractors actually obtained significantly lower subcontract costs than they included in their proposals.
