Summary: In its present form, the Vinson-Trammel Act is outdated, unworkable, administratively burdensome, and inequitable. It should either be replaced or modified. The basic GAO position on profit limitation continues to be that, as a minimum, a profit limitation statute should be in place which would become operative during a period of national emergency when contract activities increase significantly. Additionally, GAO believes that during periods of rapid expansion in defense spending, some type of profit limitation statute is in the public interest. Existing legislation does not protect the government against unreasonable profits. As an alternative to enacting new legislation, GAO believes the act and its existing regulations provide a framework that could be updated and modified to correct its objectionable defects. Specific changes can be made to substantially reduce the administrative burden in complying with the act, especially on small businesses. Whether the act is replaced or modified, in order to recognize legitimate concerns of government and industry, GAO suggested that the following guidelines be considered: (1) expand coverage to include all defense items, not just ships and aircraft; (2) limit its application to completed noncompetitive negotiated contracts and first-tier subcontracts; (3) increase the dollar threshold from $10,000 to at least $5 million; (4) compute profit on the basis of a predetermined return on investment rather than on a percentage of contract costs or prices; (5) use Defense Acquisition Regulation cost rules as the basis of determining profits; (6) provide specific criteria for offsetting certain losses against profits; (7) simplify reporting; (8) permit audit sampling of profit reports to monitor compliance; and (9) provide stiff administrative penalties for contractors who do not comply with reporting requirements. GAO does not advocate totally eliminating profit limitations, particularly on noncompetitive procurements. As a matter of public policy, some assurance is needed that defense contractors will not make unreasonable profits at the taxpayers' expense. This is particularly important during a period of increased defense spending and when significant nondefense budget cuts are occurring.
