Summary: Pursuant to a congressional request, GAO reviewed subcontract estimates in four contracts awarded to three Department of Defense (DOD) prime contractors, focusing on whether recent revisions to DOD procurement regulations reduced or eliminated subcontract pricing problems that caused inflated contract prices.
GAO found that: (1) DOD efforts to address subcontract pricing problems were not effective; (2) of the 68 subcontract estimates totalling approximately $162 million, DOD paid approximately $11.7 million more than the prices the contractors paid their subcontractors; (3) in 9 out of 12 noncompetitive subcontract estimates, prime contractors did not complete required subcontract evaluations prior to contract negotiations; (4) on 13 competitive subcontract estimates, prime contractors negotiated subcontract prices that were approximately $3 million less than amounts negotiated in DOD contracts; (5) although the Defense Contract Audit Agency (DCAA) previously cited two of the three contractors for failing to timely evaluate subcontract cost estimates, the deficiencies remained uncorrected; and (6) contracting officers responsible for the reviewed contracts failed to use appropriate contract clauses to protect against inflated subcontract estimates.
