Summary

GAO evaluated the Defense Department's (DOD) efforts to ensure that high-risk contractors reduce the government's vulnerability to contract pricing. GAO found that contractors' performance in correcting their significant cost-estimating system deficiencies has been mixed. Although 19 of the 30 contractors GAO reviewed had corrected all their major cost-estimating system shortcomings, the remaining 11 contractors had deficiencies that had been outstanding an average of 3.8 years. Not correcting estimating deficiencies promptly creates a variety of problems for DOD, including increased costs and delays in contract awards. Although DOD contracting officers have used various approaches to encourage contractors to correct their cost-estimating system deficiencies, contracting officers have not resorted to the more stringent measures available, such as reducing progress payments or recommending nonaward of future contracts. GAO found that Defense Logistics Agency (DLA) oversight of contracting officers is important--especially where deficiencies are longstanding--for two reasons. First, contracting officers have considerable latitude in deciding how to obtain corrective action. Second, DOD does not specify criteria used to determine timeliness of corrective actions. Although contracting officers need flexibility in working with contractors, DOD also needs to periodically review the adequacy of contracting officer actions and ensure that estimating system deficiencies are promptly corrected.

GAO found that: (1) contractors' performance in correcting their significant cost-estimating system deficiencies has been mixed; (2) 11 of 30 high-risk DOD contractors have significant uncorrected deficiencies that have been outstanding an average of 3.8 years; (3) the failure to timely correct estimating deficiencies creates a variety of problems for DOD, including increased costs and delays in contract awards; (4) although DOD contracting officers take various actions to encourage contractors to correct cost-estimating deficiencies, contracting officers do not use the most stringent measures available, such as reducing progress payments or recommending nonaward of future contracts; (5) even when contractors have long-standing estimating system deficiencies, the Defense Logistics Agency (DLA) does not attempt to determine the reasons for delays in correcting the deficiencies or ensure that contractors and DOD contracting officers are taking all appropriate actions to correct them; and (6) DLA oversight of contracting officers is important, since they have considerable latitude in deciding how to obtain corrective action and DOD does not specify criteria used to determine timeliness of corrective actions.