United States General Accounting Office - GAO Report to the Chairman, Subcommittee on Defense, Committee on Appropriations, U.S. Senate January 1990 GOVERNMENT CONTRACTING - C;omwnsation 01 a l n Defeke Contractors’ Working Capital fianc&g [ costs -- - HAD-90-33 GAO United States General Accounting Office Washington, D.C. 20548 National Security and International Affairs Division B-224639 January 31,1999 The Honorable Daniel K. Inouye Chairman, Subcommittee on Defense Committee on Appropriations United States Senate Dear Mr. Chairman: As requested, we reviewed the Department of Defense’s (DOD) profit pol- icy to determine whether it appropriately considers a contractor’s work- ing capital costs by taking into account the important factors that affect working capital. DOD’s profit policy includes a provision to recognize the millions of dol- lars defense contractors incur annually in financing working capital costs on fixed-price contracts. Working capital costs consist of the con- tractor’s work in process costs-material, labor, and overhead-that are not financed through progress payments’ or other payments. In negotiating contract prices, DOD does not attempt to prepare an exact calculation of such costs, but instead tries to give general recognition to the contractor’s working capital costs under varying contract circum- stances, financing policies, and economic environments. If DOD’S policy does not appropriately consider a contractor’s working capital financing costs, it could affect contract profits, either to the contractor’s or the government’s disadvantage. policy generally recognizes the important factors that affect con- Results in Brief DOD's tractors’ working capital financing costs. Our analysis of a sample of contracts showed that in the aggregate the policy resulted in approxi- mately the right amount of these financing costs being included in the profit objective. That is, the costs likely to be incurred during the life of the contract were close to the amounts estimated by DOD. While this was true in the aggregate, there were differences of 10 percent or more in most of the individual contracts between DOD'S estimate and our esti- mate of working capital costs. On individual contracts, therefore, if con- tracting officers do not adjust for the specific circumstances of that contract, too much or too little profit could be included in the contract price. ‘Progress payments aw used by DOD to finance a certain percentage of a contractor’s work-m process on fixed-price contracts through monthly reimbursements of allowable costs incurred. Page 1 GAO/NSIAB~OGB Working Capital Financing Costs 5224639 Because working capital is just one element used in determining contrac- tor profit objectives, these adjustments for working capital financing costs would generally not be large in relation to the total contract price. In some of our sample cases, however, our analysis showed differences of close to $ I million in the contract price, comparing DOD’S estimate to ours. We believe that DOD contracting officers need to carefully consider whether adjustments are needed in working capital financing costs to more closely approximate cost actually incurred. profit policy consists of a set of structured guidelines that are used Background DOD’s by its contracting officials to establish a profit objective for contract negotiating purposes. The working capital profit factor is one element included in the profit objective. DOD revised its profit policy in October 1986. Before this revision, the policy only recognized contractors’ financing expenses implicitly as an undefined portion of the contract risk profit factor. The revised policy, for the first time, enables a contracting officer to include an explicit amount in the total profit objective for a contractor’s forecasted costs of financing working capital. DOD developed a simplified calculation that negotiators can use to deter- mine the element representing the working capital profit factor to be included in the overall contract profit objective. This calculation consid- ers (1) the contractor’s estimated working capital costs (estimated total contract costs less progress payments), (2) the g-month Treasury rate, and (3) the contract length2 and the timing of delivery payments to con- tractors. In determining the overall working capital profit objective, DOD’s policy provides general guidance that calls for adjustments to be made for scheduled delivery payments” and other factors that would reduce contractor working capital requirements. Data on the negotiated profit objective for the working capital profit factor were not available when our review was initiated. However, according to DOD’S data, 2,015 negotiated fixed-price contracts were awarded in fiscal years 1985-87, which would likely be subject to the working capital profit factor in DOD’S profit policy. ‘The contract length factor represents the pencd of time that the contractor has a working cap& Lnvestment in the contract ‘Delivery payments corwst of the price for the items delivered less progress payments. The funds recewed as part of the debvery payment reduces the contractors’ financing requirements Page 2 GAO/NSlAlHO-33 Working Capital Financing Costs B224639 We sent a questionnaire to contractors to collect data on expected work- ing capital costs. Using this data, we estimated working capital costs on these contracts and compared it to the working capital profit factor derived from using the current profit policy. (See app. III for examples of our computation of projected working capital financing costs.) Our purpose was to evaluate the relationship between the amount of working capital profit factor that would be established in a profit objec- tive using DOD’S profit policy and the predicted working capital financ- ing costs for a Sample of DOD COntraCtS. In our study, we applied W D ’S current profit policy methodology to the DOD’s Working delivery payments and spending plan data obtained on contracts in our Capital Profit Factor sample. We concluded that W D ’S methodology, in total, would result in Accurate Overall, but about the same amount of financing cost that we estimated contractors would incur. Therefore, in terms of generally recognizing the important Not for Individual factors that affect contractors’ working capital financing costs, the pol- Contracts icy achieves its goal. However, the impact on individual contracts varied-our analysis showed that DOD’s policy underestimated the working capital financing costs on many contracts and overestimated the working capital on many other contracts. Our analyses of the relationship between the working capital profit objective in DOD’S current policy and contractors’ expected financing costs’are based on contracts that provided detailed data about the expected timing of contract expenditures. Based on the contractors’ monthly unreimbursed costs, we estimated the total working capital financing costs for these contracts to be about 1.4 percent of the total contract costs. Applying DOD’s methodology to the contract data col- lected indicated that profit objectives also would be about 1.4 percent of the total contract costs in the aggregate. We compared the profit objective and the financing costs on each con- tract by subtracting the estimated working capital profit objective from the predicted financing costs on a contract-by-contract basis. For approximately 87 percent of the contracts, representing about 80 per- cent of the projected dollar value, or $25 billion, inaccuracies of 10 per- cent or more in working capital profit objectives would result under ‘We used a progress paymrnt rate of 80 percent and an interest rate of 8 5 percent I” calculatmg fmancmg costs We chose these rates because they were m effect at the tmw DOD reused ith pohcy Future changes m the ptwgrcss payment rates and mterest rates would not alter the relat~~~nshqx studied (I e.. DOD‘s workmg (apIta adjustment factor and contractor’s expected financmg I’OSTSI Page 3 GAO/NSIABW33 Working Capital Financing Cwts B224639 DOD'S current policy. For contracts that had a total value of about $12 billion, the working capital profit factors would be underestimated by a factor of 10 percent or more, whereas for contracts with a total value of about $13 billion, the working capital profit factors would be overesti- mated by a factor of 10 percent or more. These variations result because DOD'S working capital profit factor does not adequately consider the effects of the timing of contract cost expenditures and their relationship to delivery payments. DOD'S methodology and guidance recognize in a general way that deliv- ery payments reduce working capital financing costs. It simplifies the calculation of working capital costs by assuming that the average time elapsed between incurring costs and receiving delivery payments is the same for all contracts with delivery schedules of a similar length. The projected cost expenditure data from our sample contracts, however, show that the level of expenditures varies from month to month. Varia- tions in the timing of these cost expenditures and delivery payments affect financing costs in ways that are not accounted for by the DOD working capital profit factor. DOD's guidance instructs the contracting officer to make adjustments under certain circumstances. For example, the guidance states that “the contracting officer may adjust [contract costs] where the contractor has a minimum cash investment.” While the guidance provides the latitude to make these adjustments, the policy does not provide specificity as to when and how to consider the variations in the timing of cost expenditures and delivery payments. For example, discussions with contracting officers and pricing analysts indi- cated that DOD'S profit policy does not provide them with guidance that would enable consistent adjustments to contract costs and contract length. Therefore, the necessary adjustments to contract costs and con- tract length may not always be made. These adjustments should be made because they reduce the contractor’s financing requirements. The following examples show how the timing of contractor cost expend- itures and delivery payments on two contracts affect the amount of financing costs even though contract costs and adjusted contract length are similar. Additional details on these examples are contained in appen- dix III. These examples highlight the methodology used in preparing this report. Page 4 GAO/NSIAD-SO-33 Working Capital Financing Costs E-2246.39 On one contract with a cost of $121 million, and an overall length of 55 months, we calculated working capital financing costs of $2.8 million, whereas application of DOD'S profit policy showed that financing costs would be $2.4 million. During the first half of the 55-month contract, before any deliveries were made, the contractor incurred about 70 percent of the contract costs. During the final 26 months of the contract, the contractor incurred the remaining 30 percent of contract costs. In months 29 and 30, the contractor received payments for deliveries made. These deliv- eries accounted for 50 percent of the value of the items to be delivered. Two other deliveries were made, one in month 39 and one at the end of the contract. Under this contract, the contractor would incur higher working capital costs during the first half of the contract and signifi- cantly lower costs thereafter. Unless adjustments are made to the working capital profit factor, appli- cation of DOD’S methodology would result in a lower profit objective because it does not recognize that the contractor’s investment was much higher during the first half of the contract than the second half. In contrast, on another contract with a cost of $118 million and an over- all length of 48 months, we calculated working capital financing costs of $1.2 million. DOD’s profit policy would have allowed an amount for working capital financing costs of $2.3 million. On this contract, only about 20 percent of total contract costs were incurred during the first half of the contract. Deliveries began at about this point and continued throughout the remainder of the contract. DOD’S methodology, unless adjustments are made, would result in over- recognition for working capital financing costs on this contract because it does not recognize that the contractor’s investment was not very sig- nificant during the first half of the contract. Delivery payments later reduced the amount of the contractor’s investment. awards contracts each year involving many millions of dollars in Conclusions DOD working capital profit. DOD's profit policy of generally recognizing work- ing capital appears to provide for profit objectives that approximate working capital financing costs on contracts in the aggregate. We found. though, that if DOD's methodology is applied without adjustments there can be significant variations on individual contracts. Current guidance provides general instructions on when and how such adjustments should Page 6 GAO/NSIAD-9033 Working Capital Financing Costs 5224639 be made, and DOD acknowledges the importance of contracting officers using their judgment to make adjustments. When we initiated our review, the working capital profit policy had not been in effect long enough for data on actual working capital cost to be available. Our finding that the policy in the aggregate seems accurate but can result in sizable variations on individual contracts, is based on our analysis of projected contractor working capital needs. We believe it will be important for DOD to monitor actual experience with the policy to ensure that both the government and individual contractors are treated equitably under the policy. Agency Comments draft of this report. Our draft report proposed that DOD revise its meth- odology for determining the working capital profit factor. DOD stated that the working capital profit factor was intended to give general recognition to some factors that affect contractors’ costs for working capital under varying circumstances, not to calculate these amounts precisely. We recognize that the working capital profit objec- tive is only one part of the overall profit policy and further that overall profit on negotiated contracts can represent only a portion of contract price. The report has been revised to more clearly present this. DOD stated that the policy relies heavily on the contracting officer’s judg- ment in adjusting the values of the various components that are used to develop the factor. We agree that the contracting officers should use their judgment in establishing the values of the various components that are used to develop the factor. Because of this and because of the limited actual experience with the new policy at the time of our review, we are not making any recommen- dations in this report. We believe, however, that DOD needs to monitor the implementation of the policy over time to assure that it results in equitable, consistent treatment of working capital financing costs. We plan to distribute this report to interested parties and make copies available to others upon request. Page 6 GAO/NSIAD96-33 Working Capital Financing Costs B-224639 This report was prepared under the direction of M r. Paul F. Math, Direc- tor, Research, Development, Acquisition and Procurement Issues, who may be reached on ((202) 275-4587 if you or your staff have any ques- tions Other major contributors to this report are listed in appendix V. Sincerely yours, Frank C. Conahan Assistant Comptroller General Page 7 GAO/NSlAMO-33 Working Capital Financing Costs - Contents Letter 1 Appendix I 10 Defense Contractors’ Background 10 DOD’s Profit Policy Does Not Always Compensate 13 Working Capital Contractors Accurately for Working Capital Financing Costs Financing Costs Adjustments to Contract Length and Estimated Costs I6 Materially Affect DOD’s Computation of Financing costs Appendix II 18 Objectives, Scope, and Methodology - Appendix III 21 Examples of Projected Working Capital Financing Costs Estimated Using Data Submitted by Contractors - Appendix IV 25 Comments From DOD GAocomments 28 Appendix V 29 Major Contributors to This Report Page 8 GAO/NSlAB9@33 Working Capital Financing Costs Contents Tables Table I. 1: Summary of Fixed-Price Contracts W ith 10 Progress Payments Table 1.2: Summary of Comparison of Estimated Working 14 Capital Profit Factor and Predicted Financing Costs Abbreviations DFAIR Defense Financial and Investment Review DOD Department of Defense Page 9 GAO/NSL4D9O-33 Working Capital Financing Costs Appendix I DefenseContractors’Working Capital Financing costs DOD revised its profit policy in October 1986 to include for the first time, Background a Drofit factor to recognize explicitly contractors’ costs of financing wbrking capital for w&k in process costs-material, labor, and overhead. DOD’S profit policy is applied to contract actions where price is to be negotiated.’ The profit policy provides a range of profit factors applied by DOD contracting officials to several categories-contract perform- ance, contract risk, and facilities capital employed-to arrive at a total profit objective used in negotiating contract profit. The working capital profit factor is part of the contract risk element. The working capital profit factor applies to fixed-price contracts for which progress payments are authorized. The profit policy provides an implicit working capital profit factor for contracts that do not receive progress payments. In fiscal years 1985-87, DOD’S data indicated that it negotiated 2,015 fixed-price contracts for which progress payments were auth0rized.l Table I. 1 presents a breakdown of these data by years. Table 1.1: Summary of Fixed-Price Contracts With Progress Payments Authorized customary progress payment rate Fiscal year Number of contracta (percent) 1985 676 90to80a 1SA6 __. 662 80 1907 677 75 Total 2.015 aProgress payment rate decreased from 90 to 80 percent on May 1 1965 The progress payment rate decreased from 60 to 75 percent on October 16, 1986. Source Data from DOD Form DD-350 (Indlwdual Contracting Actjon Report) Fixed-price contracts can be eligible for either customary progress pay- ment rates at the rates shown in table I. 1, or flexible progress payment rates, which are higher than the customary rate. Flexible progress pay- ments are designed to recognize that working capital financing costs ‘The profit policy applies to contract actions where price is to be negotiated and the contract action is valued at $500,000 or more. DOD issued the revised profit policy Initially on an interim basis, effec- tive October 1986. It was wued, with some changes, as a final rule, effective August 1987. ‘See note under source m table 1.1 Page 10 GAO/NSIAD9033 Working Capital Financing Costs Appendix I Defense Contractors’ Working Capital Financing Costs may be higher than those costs anticipated by customary progress pay- ment rates when considering the time difference between when contrac- tors pay for costs incurred and when they are reimbursed for these expenses. Contractors may then qualify for a flexible progress payment rate that is higher than the customary rate. To determine the flexible rate, DOD has developed a computer program that uses contractors’ pro- jections of monthly incurred cost and delivery data over the contract life. These data are audited by the Defense Contract Audit Agency. According to DOD officials, the data necessary to establish flexible prog- ress payment rates are generally submitted before the negotiation of contract price. Why a Working Capital DOD’S move to include an explicit working capital profit factor into the profit policy stemmed from the Defense Financial and Investment Profit Factor Is Needed Review (DFAIR). DFAIR was a DOD study of the integrated effect of con- tract pricing, financing, and profit, which was completed in June 1985. Historically, the government has not recognized interest costs as an allowable contract cost. Instead, the government has found it economical to provide financing to contractors through progress payments, which reduce the contractor’s need to borrow money. Also, the government uses progress payments partly because it can borrow money at a lower rate than the contractor. This presumably reduces overall contract costs. Before the current profit policy was established, DOD compensated contractors for the expense of financing working capital requirements implicitly through the contract risk profit factor. Operating costs not covered by either delivery or progress payments may have to be financed by commercial borrowing. DFAIR concluded that needed to explicitly link its contract financing DOD policies with its profit policy. DFAIR stated that the heightened aware- ness of the time value of money and other cash management concerns makes it imperative to develop an explicit link between contract financ- ing and profit. The revised profit policy attempts to accomplish this objective by providing a methodology that generally recognizes the working capital costs that would not be financed through progress pay- ments or delivery payments. Working Capital Profit DOD’S profit policy provides a methodology, similar to simple interest, to Adjustment determine the working capital profit factor on an individual contract basis. Basically, the methodology is as follows: Page 11 GAO/NSIAB90-33 Working Capital Financing Costs , Appendix I Defense Contractors’ Working Capital Financing Costs Portion financed by contractor x interest rate x contract length factor = working capital profit adjustment The contractor’s share of financing is generally the portion not covered by progress payments. The contract length factor represents the period of time that the contractor has a working capital investment in the con- tract. The contracting officer uses a table provided in the profit policy to establish the contract length factor. Contract length is adjusted to reflect the timing of deliveries and periods of inactivity. The working capital profit factor is limited to a 4-percent ceiling of allowable contract costs. The interest rate used is the rate promulgated by the Secretary of the Treasury under Public Law 92-41. According to DOD, the interest rate, length factor, and the 4-percent ceiling were set so as to result in a conservative estimate of the working capital profit factor. Further, according to DOD officials, contracting officers’ judgment, on such things as periods of inactivity, represent an important part of the working cap- ital profit factor. DOD developed this methodology primarily based on its DF.41R study. In that study, DOD used 12 contracts to draw conclusions about contract costs, delivery patterns, and contract lengths. In DFAIR, DOD used a model based on unreimbursed monthly costs to establish its methodology for calculating working capital financing costs. Our methodology was based on DFAIR’S model of unreimbursed monthly costs. We evaluated the model and found that it took into account the important factors that affect working capital financing costs. Cost Input and Contract In determining the profit objective that will be allowed for contractors’ working capital costs, DOD’s profit policy states that certain adjustments Length Adjustments Based may be made for contract costs in which the contractor has a minimum on Contract Profile cash investment. For example, the policy states that contract length be adjusted for the amount and timing of delivery payments that the gov- ernment makes to contractors because these payments reduce their working capital financing costs. In addition, total contract costs should be adjusted when subcontracts are authorized for progress payments because these arrangements reduce the prime contractor’s working capi- tal investment. Adjusted contract length is determined by eliminating periods of con- tractor inactivity. For example, the time that the contractor begins incurring significant amounts of costs may be several months after the contract award date. Also. a contract may not be closed out for months Page 12 GAO/NSL4D90-33 Working Capital Financing Costs Appendix I Defense Contractors Working Capital Fiiancing costs after the last delivery is made and the last significant cost incurred. These time periods, according to DOD,should not be included in contract length. In addition, the contracting officer is required to adjust contract length on contracts with multiple deliveries. M)D is not explicit about how this adjustment should be made for all contracts. Our discussions with contracting officers indicate that the necessary adjustments to con- tract costs and contract length may not always be made because the guidance lacks specificity. Working capital financing costs on negotiated contracts amount to hun- DOD’s Profit Policy dreds of millions of dollars every year. If DOD’Smethodology for deter- Does Not Always mining contractors’ working capital requirements does not adequately Compensate recognize these costs, inequities in profit objectives either to contractors or to the government may result on a contract-by-contract basis. Contractors Accurately for Our analyses of the relationship between the working capital profit fac- tor and contractors’ expected financing costs were based on 352” con- Working Capital tracts from a universe of 2,015 for which detailed data about the Financing Costs expected timing of contract expenditures were available. The 352 con- tracts used in our sample had a projected value of approximately $3 1.6 billion, Our analysis, which was based on the contractors’ monthly unreimbursed costs, showed that total working capital financing costs for these contracts to be about 1.4 percent of the total contract costs. Applying WD’S methodology for estimating the working capital adjust- ment factor to the contract data we collected also indicated the financ- ing cost to be about 1.4 percent. However, the impact on individual contractors varied-DOD’s policy would result in overestimating the working capital costs on many contracts while underestimating on many others. We compared the working capital profit factor and the estimated financ- ing costs on a contract-by-contract basis. The results showed that for approximately 87 percent of the 352 contracts, representing about 80 percent of the dollar value, or $25 billion, discrepancies between profit negotiation objectives and financing costs of 10 percent or more could be expected from working capital profit factors negotiated under DOD’Scur- rent policy. For contracts valued at about $12 billion, our analysis “Our analyses of whether the profit policy achieves DOD’s objective of prowding contractors wth reimbursements that approximate contractors‘ financmg costs are based on data from 168 contracts The 168 contractS could be protected to represent about 352 contracts with flexible progress pay- ments. Flexible progress payment contracts include about 70 percent of the dollar value UPall 1.694 contracts recewlng pmgress payments. Page 13 GAO/NSlAIMO-33 Working Capital Financing Costs Appendix I Defense Contractors’ Working Capital Financing Costs showed that the contract would be assigned a profit objective that was at least 10 percent under the predicted financing costs. For contracts with a total value of about $13 billion, the analysis showed that the con- tracts’ profit objective would be at least 10 percent over the predicted financing cost. These variations result from DOD’S working capital profit factor, which does not adequately consider such things as the effects of the timing of contract cost expenditures and their relationship to deliv- ery payments. Estimated Working Capital Profit Factor Dollars bn millions and Predicted Financing Cost9 Average over/ Projected under Estimated financing costs number of Total price of compensation (percent) contracts contracts (percent) Close estlmatlon wthln + or -10 46 $6464 -1 Under estlmatlon -10 to -25 50 4,708 -17 more than -25 139 7,585 -41 Total 189 12.293 Over estlmatlon, +lO to +25 34 3,613 -~ +I8 more than +25 82 9,270 +79 Total 116 12,883 Total 352 $31,640 Note Entries may not add due to roundmg aAll entries are subject to sampling error For example, the estimate from the first column that 07 per cent (all but 46 contracts) would not be closely compensated IS contained in a 95.percent confidence Interval DOD’S implementing regulations on the current profit policy clearly state that the formula is not intended to be an exact calculation of a contrac- tor’s cost of working capital. The policy gives only general recognition to cost input and delivery schedules. The results of our analysis, which are summarized in table 1.2, suggests that the policy can result in significant differences among most contracts. DOD’S methodology, in its general recognition of working capital financ- ing costs, assumes that the average time elapsed between incurring costs and receiving delivery payments is the same for all contracts with deliv- ery schedules of similar lengths. Projected cost expenditure data from contracts in our sample showed that the level of cost expenditures on individual contracts varies from month to month. Our estimates of Page 14 GAO/NSW9033 Working Capital Financing Costs Appendix I Defense Contractmd Working Capital Financing costs imputed financing costs were based on projected net monthly unreimbursed contract costs (total monthly costs, less progress pay- ments and delivery payments). The following examples show how the timing of contractor cost expend- itures and delivery payments affect the amount of financing costs even though contract costs and adjusted contract length are similar. A com- parison of results using DOD’S profit policy with our calculations pro- duced important differences in financing costs in each case. Additional details on these examples are in appendix III. On one contract with a cost of $121 million, and an overall length of 55 months, we calculated working capital financing costs of $2.8 million, while application of DOD’S profit policy resulted in financing costs of $2.4 million, baaed on an adjusted contract length of 37 months. During the first half of the 55-month contract, before any deliveries were made, the contractor incurred about 70 percent of the contract costs. During the final 26 months of the contract, the contractor incurred the remaining 30 percent of contract costs. In months 29 and 30, the contractor received payments for deliveries made. These deliv- eries accounted for 50 percent of the value of the items to be delivered. Two other deliveries were made, one in month 39 and one at the end of the contract. The cost and delivery data on this contract indicate that the contractor would incur higher financing costs during the first half of the contract and significantly lower costs thereafter. This pattern caused our estimate of financing costs being higher than DOD’s working capital profit factor would provide. DOD’s methodology would result in a lower negotiated profit objective on this contract because it does not recognize that the contractor’s invest- ment was much higher during the first half of the contract. In contrast, on another contract with a cost of about $118 million and an overall length of 48 months, based on the monthly cost input and deliv- ery profile of the contract, we calculated working capital financing costs of $1.2 million, DOD’S profit policy would have provided for a profit objective of $2.3 million baaed on an adjusted contract length of 37 months. On this contract, only about 20 percent of total contract costs were incurred during the first half of the contract. Deliveries began at about this point and continued throughout the remainder of the con- tract, thereby reducing working capital requirements. Page 18 GAO/NSL4D9O.33 Working Capital Financing Costs Appendix 1 Defense Contractors’ Working Capital Financing Costs DOD’S methodology could result in higher negotiated profit objectives on this contract because its methodology for calculating working capital does not take into account that the contractor’s investment was not very significant during the first half of the contract. It also does not take into account that delivery payments occurring during the period of heaviest incurred cost reduced the amount of the contractor’s investment. Adjustments to need to be made for periods of inactivity, and subcontractor progress Contract Length and payments that are liquidated late in the period of prime contract per- Estimated Costs formance. The cash flow model adjusts for these things and does not rely on the contracting officer’s judgment. Materially Affect DOD’s h’nputation of When a subcontractor is authorized progress payments, the prime con- tractor receives 100 percent of the progress payments paid to the sub- Financing Costs contractor. Theoretically, this contract relationship will reduce the prime contractor’s investment. WD’s profit policy states that contract costs may have to be reduced by those amounts. Therefore, when the prime contractor has many subcontractors that receive progress pay- ments, this may reduce the prime contractor’s financing requirements. DOD officials explained that even when the prime contractor has many subcontractors that receive progress payments, this does not necessarily mean that the prime contractor’s financing requirements are reduced. A critical factor is when the subcontractor delivers versus when the prime contractor delivers, For example, when computing the working capital adjustment factor. an adjustment to contract costs may be required when the subcontractor delivers to the prime contractor and the prime contractor immediately delivers to DOD. This situation may enable the prime contractor to recover all unreimbursed costs paid to the subcon- tractor. In this circumstance, excluding some portion of the costs paid to subcontractors seem likely to produce more accurate results overall. DOD’S policy does not specify any dollar value criteria to indicate when such an adjustment should be made. For the contracts in our sample, which had progress payments to subcontractors, these progress pay- ments represented about 20 percent of the total contract costs. We believe that some of the subcontract costs should be considered for exclusion from the negotiated profit base. The following example dem- onstrates the importance of this adjustment. A 1985 Army contract for $181 million for helicopters and support equipment had $41 million of subcontract progress payments. Using Page 16 GAO/NSIABSOd3 Working Capital Financing Costs - Appendix I Defense Contractons working Cspltd Financing costs DOD’S formula, and without adjusting contract costs for these subcon- tract costs, the prime contractor’s cost to finance this contract would be $2 million. If contract costs were reduced by the amount of the subcon- tract progress payments, DOD’S formula would result in financing cost of $1.54 million, or $460 thousand (23 percent) less than if contract costs were not adjusted. We believe that DOD’S profit policy does not provide detailed guidance that would enable its contracting officers to make adjustments consist- ently to contract costs and contract length. Our calculations considered many of the adjustments. Our discussions with contracting officers indi- cate that the necessary adjustments to contract costs and contract length may not always be made. This may be because the guidance lacks specificity (i.e., defining periods of inactivity and adjusting for subcon- tractor costs). Methodology based on net monthly unreimbursed con- tract costs should consider such things as periods of inactivity. DOD’S policy states that contract length should be adjusted for deliveries. To show the importance of making this adjustment, we examined a sam- ple that was projected to represent approximately 1,700 contracts.* We estimated that if these adjustments for delivery payments were not made, the contract length factor would be 38 months. When we adjusted contract length for deliveries in accordance with DOD’S methodology, we calculated an adjusted contract length of 24 months, suggesting the need for lower requirements for working capital. The working capital profit factor based on 38 months would be approximately 2 percent of con- tract costs compared with 1.2 percent when length is adjusted. ‘As explained earlier, according to DOD’s data, 2,015 negotiated fixed-price contracts were awarded in fiscal years 1986.87. which would most likely be subject to the working capital adjustment factor in DOD’s profit policy. We studied a sample of contracts that were projected to represent approxi- mately 1,700 contracts valued at $46 billion. See appendix 11for additional details on our sampling methodology Page 17 GAO/NSIAD90-33 Working Capital Financing Costs Appendix II Objectives,Scope,and Methodology The Senate Appropriations Committee, Subcommittee on Defense, requested that we review DOD’S profit policy to determine whether it appropriately considers a contractor’s working capital costs by taking into account the important factors that affect working capital. When we initiated our review, the working capital profit policy had not been in effect long enough for data on working capital costs to be availa- ble. Therefore, we collected data that would provide estimates of con- tract working capital costs for contracts awarded in previous years. We used the data from these contracts to compare the profit objectives that would be developed for working capital under the current profit policy with the working capital financing costs that contractors could be pre- dicted to incur. In fiscal years 1985-87, DOD data’ indicated that it definitized 2,015 fixed-price negotiated contracts for which progress payments were authorized. We drew a probability sample of 425 contracts to represent all negotiated, fixed-price contracts that met the following conditions: contract obligation of at least $500,000, definitized in fiscal years 1985, 1986, or 1987, authorized for progress payments, performed by a busi- ness enterprise in the United States, and obtained a certificate of current cost or pricing data. If these conditions were met, then the contracts would be eligible for application of the working capital profit policy. Our sample of 425 contracts included all of the 225 contracting actions that DOD reported as exceeding $30 million. We used probability sam- pling techniques to draw an additional 200 contracts to represent the remaining smaller contracting actions. These contracts were selected with probabilities of selection proportionate to the amount of funds obli- gated for the remaining contracts in the universe. Our review was lim- ited to contracts awarded to large businesses. Small business contracts were excluded because they represented only 10 percent of the total negotiated fixed-price contracts. We issued 425 questionnaires to defense contractors and requested information about the contract price and the timing of deliveries and other significant contract actions such as net monthly unreimbursed contract costs. (See app. III for additional details on the type of informa- tion that we received.) Of the 425 originally identified contracts, the returned questionnaires indicated that 367 of the contracts were those that would be eligible for application of the DOD working capital profit ‘Data obtamed from DOD’s Form 350 (Indiwdual Contractmg Actlon Report) data base Page 18 GAO/NSIAB9033 Working Capital Financing Costs Appendix II Objectives, Scope, and Methodology policy. (The ineligible contracts consisted of 2 that were never executed and 54 that were not negotiated contracts. No information was received for two contracts.) Three additional contracts were excluded from the analysis due to inadequate information about the dates of contract actions. Of the 364 contracts, 176 were contracts with customary progress pay- ments, and 188 were contracts with flexible progress payments. When a contract is authorized for flexible progress payments, more detailed information is provided to the government concerning the amount, tim- ing, and types of contract costs. Detailed cost data of the type furnished for flexible progress payments is not required by the government for contracts that use customary progress payments. We requested the information for the flexible contracts in our sample because this infor- mation is generally readily available for these contracts, whereas for the contracts authorized customary progress payments, these data are not required and would have required the contractor to provide these costs. We did use the type of information that is available at the time of con- tract negotiation and audited by the Defense Contract Audit Agency. The purpose of our review was to evaluate the relationships between DOD’S current policy on working capital and predicted working capital financing costs for a probability sample of DOD contracts where data are readily available. We computed detailed analyses of differences between profits that could have been negotiated for working capital under DOD’s current policy and projected financing costs based on 168 (of the 188 contracts) with flexi- ble progress payments for which contractors provided the planned cost data. Twenty contracts were excluded from the analysis due to inade- quate information on planned cost data. Our analyses of whether the profit policy achieves DOD’S objective of providing contractors with reimbursements that approximate contractors’ financing costs are baaed on data from 168 contracts. The 168 contracts could be projected to rep- resent about 352 contracts with flexible progress payments. Flexible progress payment contracts include about 70 percent of the dollar value of all 1,694 contracts receiving progress payments. Unless otherwise indicated, the findings in this report are projections to the universe of contracts with flexible progress payments from which the sample was drawn. Thus, estimates of percentages and rates are approximations of the universe baaed on the studied contracts. Esti- mates of the total value of negotiated contracts we looked at may be underestimates of totals because some of the contracts were not used for Page 19 GAO/NSIAD90-33 Working Capital Financing Costs Appendix II Objectives, Scope, and Methodology two reasons: (1) three contracts with incomplete dates and the two con- tracts for which no information was received are excluded from the pro- jections and (2) there are probably some contracts that are eligible for the profit policy but were excluded from our study because they were incorrectly coded on the DOD Individual Contracting Action Reports. We estimated the amount of working capital profit for each contract as prescribed by the new policy. This profit objective is determined on an individual contract basis by DOD's prescribed formula that considers some of the factors that determine contractors’ working capital financ- ing costs. In applying DOD's formula, we adjusted contract length in accordance with DOD'S profit policy. We also eliminated periods of con- tractor inactivity based on information provided by the contractors. We used the date of submittal of the first progress payment request or date when 2 percent of costs were incurred, whichever was earliest, as the contract start date (rather than the date of contract award). We based the contract completion date on the expected date of contract comple- tion as indicated by the questionnaire results or date of last delivery. We also estimated the working capital financing cost for each contract for which cost and delivery data were provided. Our calculations are based on projected monthly spending and delivery patterns and unreimbursed costs that were initially expected for the contract as determined by DOD's flexible progress payment computer model. The data used for the model represents projections of contract costs expendi- tures, not actual costs incurred. During the review, we held discussions with DOD officials responsible for developing the profit policy. We obtained information on how the work- ing capital profit policy was derived and also on DOD'S computerized pro- gram for determining flexible progress payments. We talked with DOD contracting officers and pricing analysts to determine how the working capital profit policy was being implemented. We discussed the results of our review with responsible DOD officials. Our review was performed from March 1988 through December 1989 in accordance with generally accepted government auditing standards. Page 20 GAO/NSlAD90-33 Working Capital Financing Costs Appendix III Examples of ProjectedWorking Capital FinancingCosts Estimated Using Data Submitted by Contractors Example I: Cum Cum delivery Contractor Monthly progress payments unreimbursed Time Financing Month costs Cum costs payments (0009) costs (days) costs 1 $2.760 $2,760 $2208 $0 $552 30 $4 2 2,760 5,520 4416 0 1 104 31 a 3 3,396 8,916 7.133 0 1,783 31 13 4 3,396 12,312 9850 0 2,462 30 17 5 3,611 15,923 12.738 0 3,185 31 23 - 6 3,613 19,536 15,629 0 3,907 30 27 7 3,613 23,149 - 18.519 0 4,630 31 ii 8 3,572 26,721 21377 0 5,344 31 39 9 2.835 29,556 23,645 0 5,911 ~ 28~~~ -~~ 39 10 2- 32,391 25,913 0 6,478 31 47 11 2,876 35,267 28,214 0 7,053~~__ 30-~. 49 -~~ 12 2,876 38,143 30 514 0 7,629 31 55 ~~. .~ __-. 13 2,876 41.019 32.815 0 8,204 30 57 14 2,876 43,895 35116 0 8,779 31 63 15 2,873 46,768 37414 0 9.354 31 68 -~____~~ ~~ ..._~ 16 2,862 49,630 39704 0 9,926 30 66 17 2,862 52,492 41994 -~ 0 -- 10,498 31 76 la 2,862 55,354 ~- 44283 0 11 071 30 77 19 2,862 58.216 46,573 0 11,643 31 a4 20 ____- 2.806 61,022 48.818 0 12,204 31 aa 21 2,829 63,851 51,081 12,770 28 a3 22 2,829 66,680 53,344 13.336 32 99 23 3,039 69,719 55,775 13,944 30 97 24 3,039 72,758 58.206 14,552 31 ~105 25 3039 75.797 60.637 15,160 30 106 26 3,053 78,850 63,080 -----o-- 15,770 31 114 _._____~ ~~~--~ 27 3,054 81,904 65,523 0 16 381 31 118 ~~__~~ ~- ~.~~ 28 3.054 84,958 67,966 0 16,992 15 59 29 0 84,958 67,966 2,241 14,751 15 52 29 3,204 88,162 70,529 2,241 15,392 15 54 30 0 88,162 70,529 12,250 5,383 16 20 30 3.054 91.216 72.973 12.250 5,993 30 42 __. 31 3,054 94,270 75,416 12,250 6,604 31 48 32 2,993 97,263 77,810 12.250 7.203 31 52 33 1,392 98,655 78924 12,250 7,481 28 49 34 1,392 100,047 80.037 12,250 7 760 31 56 35 1390 101437 al 149-.2250-~~~- 8.038 30 56 Page 21 GAO/NSIAD-SC-33 Working Capital Financing Costs Appendix III Examples of Projected Working Capital Financing Costa Estimated Using Data Submitted by Contractors Cum Cum delivery Contractor Monthly progress payments unreimbursed Time Financing Month costs Cum costs payments (000s) costs (days) costs 36 1.390 102.827 82.261 12.250 8316 31 60 37 1,381 104,208 - 83,366 - 12,250 8.592 30 60 38 1.381 105,589 84,471 12,250 8,868 15 ~- 31 39 0 105,589 84,471 18,803 2,315 16 9 39 1,382 106,971 85,576 18,803 2,592 31 19 40 1,382 108,353 86,682 18,803 2,868 30 20 41 1,534 109,887 87,909 18,803 3,175 31 23 42 1,382 111,269 89,015 18,803 3,451 30 24 43 907 112,176 89.740 18,803 3,633 31 26 44 868 113,044 90,435 18,803 3,806 31 27 45 - 849 113,893 91,114 18.803 3.976 28 26 46 849 114,742 91,793 18,803 4,146 31 30 47 838 115.580 92463 18.803 4314 30 30 48 838 116,418 93,134 18,803 4,481 31 32 49 829 117,247 93,797 18,803 4,647 30 32 50 829 118,076 94,460 18,803 4,813 31 35 51 798 118,874 95.098 18.803 4.973 31 36 52 798 119,672 95,737 18,803 5,132 30 36 53 797 120,469 96,374 18.803 5.292 31 38 54 926 121,395 97,112 18,803 5.480 15 19 55 0 121,395 97,112 24,283 0 0 0 Total 9121.395 2.761 Estimate of working capital ftnancmg costs had DOD methodology bee” used on contract I” our sample (See note 1 ) 2,373 Our projected fmancmq costs I” excess of DOD’s methodoloav $388 NOTE 1’ DOD methodology for computing flnanclng costs Portlo” of contract costs financed by contracto? $24,279 X Contract length factor” 1 150 x Interest rate 0 DOD flnanclng costs - aThe contractors share of flnanclng IS generally the portlon not covered by progress payments bThls factor represents the period of hme that the contractor has a workmg capital Investment I” the contract DOD‘s proflt policy prowdes a table to establish the contract length factor The contract I” the example has an adlusted length of 37 months-the table I” the DOD policy !ndlcates that when the adjusted contract length is 37 months, the contract length factor should be 1 15 Page 22 GAO/NSL4DSO33 Workhg Capital Financing Costs Appendix ITI Examples of Projected Working Capital Fllcing Costs Estimated Using Data Submitted by Contractors Example II: Cum Cum delivery Contractor Monthly progress payments unreimbursed Time Financing Month costs Cum costs payments (0009) costs (days) costs 1 $4 $4 -~ .~.~~ $3 $0 $1 31 $0 2 14 18 14 0 4 31 0 ~~ 3 17 35 28 0 7 28 0 --_ 4 40 75 60 0 15 31 0 5 336 411 329 0 82 30 1 6 23 434 347 0 07 31 1 7 52 486 389 0 97 30 1 8 246 732 586 0 146 31 1 ..-. -.- ___~ 9 660 1,392 1,114 0 278 31 2 10 1,977 3,369 ~ ~. ~~2,695 0 674 30 5 II 531 3,900 3,120 0 780 31 6 12 810 4,710 3,768 0 942 30 7 .____ - 13 1035 5,745 4,596 0 1,149 31 8 14 1,750 7.495 -‘-5 996 0 1,499 31 11 15 646 8,141 - 6,513 0 1,628 28 11 16 872 9,013 -~ 7,210 0 1,803 31 13 17 2.496 11,509 --9,207 0 2,302 30 16 18 1240 12,749 10,199 0 2,550 31 18 19 1.025 13,774 - 11 019 0 2,755 30 19 ~-_ 20 1,602 15,376 12,301 0 3,075 31 22 21 1.136 16,512 13,210 0 3,302 31 24 22 2,359 18,871 - 15,097 19 3,755 30 26 23 3,030 21,901 17,521 19 4,361 31 31 24 2,354 24,255 19,404 233 4,618 30 32 25 3.188 27,443 21,954 662 4,827 31 35 26 4299 31,742 25,394 1,091 5,257 31 38 27 4,469 36,211 28,969 1,822 5,420 28 35 28 4,244 40,455 32,364 2.411 5,680 31 41 29 4.644 45,099 36,079 2,874 6,146 30 43 30 4,987 50,086 40,069 3,496 6,521 31 47 31 5,442 55,528 44,422 4,174 6,932 30 48 32 5,108 60,636 48,509 4,977 7,150 31 52 33 5.579 66,215 52,972 5,593 7,650 31 55 34 5,960 72,175 57,740 6.182 8,253 30 58 ~- 35 6,322 78,497 62,798 6,982 8,717 31 63 36 6,336 84,833 67,866 8,996 7.971 30 56 (continued) Page 23 GAO/NSiAD-90-33 Working Capital Financing Costs Appendix III Example3 of Projected working Capital Financing Costs Edmated Using Data Submitted by Contractors Cum Cum delivery Contractor Monthly progress payment5 unreimbursed Time Financing Month costs Cum costs payment5 (0005) costs Ways) costs 37 5,450 90,291 72,233 0,368 7,690 31 56 ~--~-- 38 5,531 95,822 76,658 2.146 7,018 31 51 59 4.770 100,600 80,480 2,985 7,135 29 48 40 3,012 103,612 82.890 4,236 6,486 31 47 41 3,311 106,923 85,538 4,791 6,594 30 46 42 3,094 110,017 88,014 5,903 6,100 31 44 43 2,196 112,213 89770 17,075 5,368 30 38 44 2,946 115,159 92,127 18.803 4,229 31 31 45 870 116,029 92,823 19,975 3,231 31 23 46 911 116,940 93.552 21,703 1,685 30 12 47 865 117,805 94,244 23,000 561 31 4 48 284 118,089 94,244 23,845 0 0 0 Total $118,099 1,224 Estimate of working capital financmg costs had DOD methodology been used on contract In our sample (See note2) 2,309 Our projected flnanclng costs in excess of DOD's methodology $1085 NOTE 2 DOD methodology for computing fmancmg costs Portton of contract costs financed by contractora $23.618 X Contract length facto+ 1 150 X Interest rate 0085 DOD flnancmg costs $2.309 aThe contractor’s share of flnanclng IS generally the portlon not covered by progress payments DThls factor represents the penod of tune that the contractor has a working capital w?stment I” the contract DOD‘s proflt policy provides a table to establish the contract length factor The contract I” the example has an adjusted length of 37 months-the table in the DOD poky lndlcates that when the adjusted contract length IS 37 months the contract length factor should be 1 15 Page 24 GAO/NSIAD-90.32 Worldng Capital Financing Costs I2ppendix I\ CommentsFrom DOD Note GAO comments supplementing those !n the report text appear at the end of this appendix ASSISTANT SECRETARY OF DEFENSE WASHINGTON. 0 c 203Ob8000 PROD”CTlON AND May 31, 1989 LOCISTIC5 (P)CPF Mr. FrankC. Conahan Assistant Comptroller General National Security and International Affairs Division United States General Accounting Office Washington, DC 20548 Dear Mr. Conahan: This is the Department of Defense (DOD) response to the General Accounting Office (GAO) draft report, "GOVERNMENT CONTRACTING: Compensation of Defense Contractors' Working Capital Financing Costs," dated April 13, 1989 (GAO Code 396117), Case 7679-A. The DOD disagrees with the basic premise on which the GAO report is based. The GAO draft report reflects a basic misunderstanding of the intent of the Department in including the working capital adjust- ment factor as one part of the weighted guidelines profit policy. It is not the objective of the profit policy to attempt to recog- nize contractors' cost of financing working capital at a rate that approximates their costs, as the GAO report states. The working capital adjustment factor is intended to give general recognition to a contractor's cost of working capital under varying circum- stances, not to calculate these amounts precisely. The policy itself clearly states this intention. One of the DOD objectives in including the working capital adjustment factor as part of the profit policy was to provide a simple but explicit link between contract financing and profit policies. Thus, the working capital adjustment factor specifi- cally recognizes that working capital requirements vary with (1) the contract circumstances, (2) the level of progress payments, and (3) the prevailing interest rates. As these factors vary, the working capital adjustment amount automatically changes, as does the total profit objective. For example, the factor provides additional working capital amounts if the progress payment rate is reduced or if interest rates increase; conversely, and it provides reduced working capital amounts if the progress payment rate is increased or if interest rates fall. Another of the DOD objectives in establishing the current profit policy was to reduce the emphasis placed on estimated cost L page25 GAO/NSIAD%l33WorkingCapitalFinancingCosts AppendixIV CommentsFrom WD in the development of a profit objective and to increase the emphasis placed on contractor investment. This objective was accomplished, in part, through the establishment of a separate factor within the weighted guidelines policy for recognizing working capital requirements on the contract. Prior to the implementation of the current policy, working capital had been implicitly considered in the development of profit objectives; now, working capital is given explicit consideration in the development of profit objectives. The GAO states that, based on its simulation of the policy and its projections of working capital costs expected to be incurred on a number of contracts! the policy would not compensate contractors at a rate that approximates their financing costs. The DOD does not agree with the GAO on the degree of precision required. A much more complicated calculation would clearly have to be developed in order to estimate more closely projected financing costs. Contracting officers would, in most instances, need to obtain additional detailed information on projected cost incurrence patterns in order to perform a more precise calcula- tion. The current policy was deliberately designed to provide a relatively simple process for developing the working capital adjustment factor. The policy heavily relies upon the contracting officer to use judgment in establishing the values of the various components that are used to develop the factor. The policy includes guidance on the types of issues that should be considered by the contracting officer in developing the values of these components. Further, the Department does not agree with the methodology used by the GAO to simulate the application of the working capital adjustment factor. Therefore, the DOD does not agree with the GAO finding that contractors may be U1overcompeneatedU~ in many cases. In performing its simulation, the GAO did not have access to the same types of information that are available to a contracting officer during the contract negotiation process and, thus, the GAO could not make the same types of adjustments that a contracting officer would make. For example, based on discussions with the GAO auditors, it is clear that no adjustments were made for the amount of subcontractor progress payments, even though the policy clearly states that the contracting officer should make an adjust- ment when the contractor has a minimum cash investment, such as when subcontractor progress payments are liquidated late in the period of contract performance. The contracting officer would See comment 1 have access to the types of information that would enable such an adjustment: the GAO did not have access to the same information to enable it to adjust for this factor. Additionally, the GAO fails to acknowledge that the working See comment 2 capital adjustment factor was established in a very conservative manner. For example, the individual contract length factors have been reduced by a factor of .35, which automatically results in lower working capital amounts. The Treasury rate is used in the Page26 GAO/NSIAD90-33WorkingCapitalFinancingCosts Appendix IV Comments From DOD - - calculation of the working capital amount, not the contractor's actual borrowing rate or commercial borrowing rates, which also results in lower working capital amounts. Finally, the working capital amount is capped so that it cannot exceed 4 percent of the total cost objective. Thus, on an individual contract, the DOD would expect that the working capital adjustment factor would usually result in %ndercompensationOq of amounts for working capital, and would rarely result in any "overcompensation." The weighted guidelines profit policy is used to develop a Q&.& profit objective for non-competitive contracts. There is no separate negotiation of amounts for contractor working capital. To characterize a variation in one factor used to establish a profit objective as potentially resulting in "excessive profits" is very misleading, particularly for individuals who are not familiar with the entire process of developing cost and profit objectives and negotiating contract price. For these reasons, the Department does not agree that it is necessary to revise the methodology used to calculate the working capital adjustment factor. Thank you for providing the DOD with the opportunity to comment on the draft report. p;ifice=eW, (Production and Logistics) J Page 27 GAO/NSIAB90-33 Working Capital Financing Costs - Appendix IV Comments From DOD DOD’S methodology for computing working capital costs would not ade- quately recognize a contractor’s working capital costs-would not change whether or not we adjusted for payments to subcontractors. Over 65 percent of the contracts in our sample do not provide for prog- ress payments to subcontractors. Many of these contracts continue to show that applying WD’S current profit policy would result in overesti- mates or underestimates of working capital financing costs. Further, the percentage of contracts with no payments to subcontractors that are over or under compensated are within 3 percent of those in table 1.2. If we adjusted prime contracts with progress payments to subcontractors when applying DOD’S methodology, it could result in an overall lower net compensation of working capital amounts. However, we were not able to make adjustments to prime contracts with progress payments to subcon- tractors because the DOD policy is not clear enough to make these adjust- ments consistently. 2. DOD stated that we failed to acknowledge that the working capital adjustment factor was established in a very conservative manner. For example, DOD stated that the (1) individual contract length factors have been reduced by 0.35 percent which automatically results in lower working capital amounts, (2) Treasury rate is used in calculating the working capital amount, not the contractor’s actual borrowing rate or commercial borrowing rates, which results in lower working capital amounts, and (3) the working capital amount is capped so that it cannot exceed 4 percent of the total cost objective. We agree that these factors may tend to result in a conservative estimate of overall working capital financing costs, and we found that DOD’S method for calculating working capital costs overall would probably not result in overcompensation. The main point of this report is that despite this conservative approach, DOD’S methodology results in overestimates or underestimates of work- ing capital cost in numerous instances. Page 28 GAO/NSL4DSO-33 Working Capital Financing Costs Appendix V Major Contributors to This Report Clark G. Adams, Assistant Director National Security and Ralph C. Dawn, Assignment Manager International Affairs James M. Fields, Social Science Analyst Alfred Lilliendahl, Operations Research Analyst Division, Washington, D.C. Joseph F. Daly, Assistant Regional Manager Philadelphia Regional James A. Przedzial, Evaluator-in-Charge Office D. Richard Stengel. Evaluator (396117) Page 29 GAO/NSL4D99-33 Working Capital Financing Costs Requests for copies of GAO reports should be sent to: U.S. General Accounting Office Post Office Box 6015 Gaithersburg, Maryland 20877 Telephone 202-275-6241 The first five copies of each report are free. Additional copies are $2.00 each. There is a 25% discount on orders for 100 or more copies mailed to a single address. Orders must be prepaid by cash or by check or money order made out to the Superintendent of Documents. P p T United States General Accounting Office Washington, D.C. 20548 official BQsiness Penalty for Private Use 6300
Government Contracting: Compensation of Defense Contractors' Working Capital Financing Costs
Published by the Government Accountability Office on 1990-01-31.
Below is a raw (and likely hideous) rendition of the original report. (PDF)