Contract Pricing

Pursuant to a congressional request, GAO reviewed the Department of Defense’s (DOD) internal controls for contract pricing, focusing on: (1) DOD use of deterrent provisions in the Truth in Negotiations Act; and (2) the interest charged on overpayments. GAO found that: (1) in fiscal year 1992, DOD sustained 40 percent of its recommended price adjustments; (2) DOD has not recovered most overpayments because contracting officers ignore audits that do not support defective pricing determinations, and DOD settles with contractors for lesser amounts; (3) DOD has initiated actions to improve the accuracy of its contractor audits and increase recommended price adjustments; (4) DOD contracting officers have not effectively used deterrents or fully assessed interest charges and penalties on overpayments because of regulatory restrictions and differing interpretations; (5) DOD does not timely settle defective pricing cases because the lengthy settlement process places a heavy administrative burden on the government and contractors; (6) the DOD contract tracking and information system has inaccurate data due to reporting errors and lacks needed oversight and management information; and (7) the DOD Inspector General has recommended several changes to improve DOD contractor reporting.