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DOCUMENT RESOB
01120 - (A0751336]
(DOD'S Profit '76 Study and New Profit Policy]. B-159896;
PSAD-77-75. February 17, 1977. 8 pp.
Report to Secretary, Depirtment of Defense; ty Elmer B. Staats,
Comptrolle7 General.
Issue Area: Federal Procurement of Goods and Services:
Reasonableness of Prices Under Negotiated Contracts and
Sutcontracts (1904).
Contact: Pr7curement and Systems Acquisition Div.
Budget Function: National Defense: Military Assistance (052).
Congressional Relevance: House Committee on Armed Services;
Senate Committee on armed Services.
Data generated by the DOD Profit 076 Study were
reviewed in terms of its impact on the development of the
Department's new profit policy. The profit policy is desighed tc
motivate defense contractors to make investments which will
increase productivity and reduce contract costs.
Findings/Conclusions: The study was generally approached in a
competent and professional manner. GAO agreed with the new
profit policy concerning: holding average negotiated profits to
prior levels, attempting to encourage contractor investments in
cost-reducing facilities, and offsetting the aggregate effect of
impul.ed interest in facilities capital. Toe basis for profit
comparison could be improved, however, and i+ was felt that
there is too little incentive to encourage -.ncreased contractor
capital investments. Imputed interest ay nct be completely
eYia.nated from the profit element. The potential exists fo,: an
overall profit increase in the negotiated contracts.
Recommendations: The Secretary of Defense should monitor the
implementation of the new profit policy to prevent its intent
from being circumvented by unjustified variatio.s in the profit
factor ranges or negotiation of rates higher than indicated by
application of weighted guidelines. The Secretary should: reduce
the impact of cost input in establishing profit objectives;
issue additional guidance to promote reasonably consistent and
uniform application of the productivity reward factor; and focus
future profit studies on a comparison of profits earned by
defense contractors to specific industry profit rates. (RRS)](ViewImageLocal?handle=hein.gao/gaobaacaq0001&div=1&collection=&method=preview&ext=.png&size=3)