Summary: GAO reviewed the costs of bidding and related technical efforts charged to Department of Defense (DOD) and National Aeronautics and Space Administration (NASA) contracts.
GAO noted that: (1) the need for improved control results principally because the Armed Services Procurement Regulation, which provides the basis for limiting charges to contracts for contractors' bidding costs and other technical effort costs, is not sufficiently clear and is subject varying to interpretations; (2) where the procurement regulations do not clearly define types of costs allowable under government contracts or do not clearly establish the extent of allowability, the interpretations made by contractors most often prevail; (3) this situation is best illustrated where contractors, such as Lockheed Missiles & Space Company (LMSC), are engaged simultaneously in the preparation of bids and proposals and the conduct of independent research and development; (4) for the larger contractors, including LMSC, agreements are negotiated in advanced covering the extent of the contractors' independent research and development programs that will be absorbed by the government, but advance agreements generally are not made limiting the amount of bid and proposal expenses to be absorbed by government contracts; (5) thus, technical effort designated by the contractor as pertaining to its independent research and development program is subject to reduced reimbursement by the government, whereas similar effort designated as bid and proposal expense may be accepted without limitation; (6) at least half of the $3.8 million of bidding and related costs claimed by LMSC for 1962 either were similar to independent research and development costs or were not clearly necessary to support the contractor's bids and proposals; (7) DOD and other government agencies, including NASA, have recognized the problem of determining allowability of bidding and related costs when such determination is based on a subjective review of the reasonableness of the contractor's classification of the technical effort for which it is claiming reimbursement; and (8) DOD informed GAO, however, that the plan to combine the costs of independent research and development and bid and proposal technical effort had been recently discontinued and that a study would be made to develop an appropriate remedy for effective management of bid and proposal costs charged to government contracts.
