Contract Pricing: Material Prices Overstated on Tank Thermal Sights
Abstract
The Texas Instruments bill of materials, which contained data on 109 parts comprising about 80 percent of material costs, was used by the Army negotiators to price direct materials. When Texas Instruments updated the supporting data on February 18, 1984, 6 days before agreement on contract price, the Army negotiators decided not to use that updated information because they believed additional negotiations would delay price agreement and might result in higher overhead rates being applied to the contract. Based on rough calculations, they estimated that the higher overhead rates expected would offset any savings from lower parts prices. The material update information was significant and should have been used to negotiate lower prices for the affected parts, particularly the parts Texas Instruments proposed to acquire during the first 2 contract years for use throughout the 5-year production period. We found that prices negotiated by the Army for 23 of the 109 parts on the bill of materials were higher than the supporting cost or pricing data and overstated total contract direct material cost by about $3.4 million. Overstating direct materials by $3.4 million had the ultimate effect of overpricing the contract by about $6.1 million, including add-ons such as materials overage and scrap, material overhead costs, other direct costs, general and administrative expense, and profit. The details on the submission of material cost and pricing data, and our analysis of how material costs were overstated are discussed in appendix I.
Document Details
- Document Type
- Technical Report
- Publication Date
- Feb 05, 1988
- Accession Number
- AD1152847
Entities
People
- Paul F. Math
Organizations
- United States Government Accountability Office