Summary: Despite laws and regulations designed to protect the government from contract overpricing, Defense Contract Audit Agency (DCAA) reports issued in fiscal years 1987-90 identified $3 billion in defective pricing. Even though DCAA audits report substantial defective pricing, many contracts and subcontracts, especially those involving lower dollar values, are never audited. In addition, subcontract proposals are overstated by millions of dollars partly because prime contractors often fail to adequately evaluate subcontractor proposals before contract negotiations, as required by the Federal Acquisition Regulation. Prime contractors then negotiate lower subcontract prices after contracting with the government. DCAA reports identifying contractor cost-estimating systems deficiencies are not always clear about the need to correct these deficiencies. Further, many DCAA reports do not recommend disapproval of contractors' estimating systems when DCAA finds them to contain major deficiencies. DCAA's use of operational audits, which have proven useful in identifying inefficient contractor operations, has decreased. GAO summarized this report in testimony before Congress; see: Contract Pricing: Recurring Issues and the Role of the Defense Contract Audit Agency, by Paul F. Math, Director of Research, Development, Acquisition, and Procurement Issues, before the Subcommittee on Legislation and National Security, House Committee on Government Operations. GAO/T-NSIAD-92-34, May 6 (20 pages).
