Review of Pricing of Fixed-Price Architect-Engineer Contracts

Published by the Government Accountability Office on 1971-12-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                          WASHINGTON,         d.c



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               Des3           Mr.   Secretary:        -

                    We have completed the;review of pricing of fixed-price         architect--
                                                                         __, ....--._-___--
               engineer contracts_(Code 863';o?%h53Zwe annou%ed?& you by letters
               0fwe-22~1g76,           and May 25, 1971.

                      We examined the pricing    of four contracts at the Air Force Space
               and Missile Systems Organization,      Los Angeles, California,      and one
               contract at the Western Division,      Naval Facilities   Engineering Command,
               San Bruno, California.     We also visited the applicable       contractors'
               offices.     Work of a more limited   nature w-as done at the Baltimore      Dis-
               trict    of the Army Corps of Engineers and at the Chesapeake Division of
               the Naval Facilities    Engineering Command, Washington, D. C.

                     For the five selected contracts,  we reviewed (1) the reasonable-
               ness of the prices negotiated in relation    to cost or pricing  data avail-
               able at the time of contract negotiations,     (2) the adequacy of technical
               and audit evaluations of the cost proposals, and (3) the adequacy of the
               contractors'  cost or pricing data.

                    We were unable to evaluate the proposed technical    labor-hours
              because of the engineering judgment involved.    Accordingly,    since the
              technical  labor-hours were a significant  element of the proposed prices,
              we were unable to evaluate the reasonableness of the prices negotiated.

                     In addition, we found instances                                of the following weaknesses in com-
              pliance with the Truth-in-Negotiations                                  Act (Public Law 87-653) and imple-
              menting procedures.

                              --Failure          to obtain     certificates          of current       cost or
                                 pricing         data.

                              --Inadequate          identification        of bases for proposed costs.
                              --Overhead rates and labor                estimates        based on noncurrent
                                 cost or pricing data.
                              --Questionable          waiver     of preaward audits.

                              --Failure   to perform            cost analysis          of subcontractors'
                                 price proposal,


                                                     50TH     ANNIVERSARY            1921-   1971 Jo
     --Failure   to include   required   clauses in contracts.

     Because of the small number of contracts reviewed, the findings
did not warrant broad conclusions,      We have reported details of the
above matters to the respective    contracting  offices and we may look
into this area again at a future date.

      Copies of this letter   are being sent to the Director, Office     of
Management and Budget, the Secretaries of the Army, Navy, and Air
Force, and the Director,    Defense Contract Audit Agency.

                                              Sincerely   yours,


The Honorable
The Secretary of Defense