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AFMD-84-12 1 (1983-12-12)

handle is hein.gao/gaobabnfa0001 and id is 1 raw text is: UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20546 ACCOUfiNM AND VNANItAI. MAMKU~ DIvmMM DECEMBER 12, 1983 B-208256 The Honorable Caspar W. Weinberger lO!R 1I The Secretary of Defense 123026 Dear Mr. Secretary: Subject: Improvements Needed in Pricing Overhaul and Repair Services Performed for Foreign Coun- tries (GAO/AFMD-84-12) This summarizes the results of our review of the adequacy of billings by the military services to foreign countries for mate- rial, labor, and other costs incurred in overhauling and repairing foreign military equipment. The Department of Defense provides overhaul and repair services on a reimbursable basis for equipment it has sold to foreign governments. We found several instances in which the military had significantly underbilled foreign customers for these services. Details of our findings, conclusions and rec- ommendations are in enclosure I. Our objectives, scope, and meth- odology are presented in enclosure II. Fiscal year 1981 billings to foreign customers for repair and overhaul work amounted to $30 million. This work is expected to increase dramatically due to the rapid growth in sales of military equipment to foreign governments. In the Air Force alone, foreign customer orders for repair and overhaul work to be performed over the next several years amount to about $300 million. For many years, the Congress has been interested in making sure that sales of military articles and services (including over- haul and repair) are made at no cost to the U.S. Government. This interest is expressed in the Arms Export Control Act of 1976, which contains specific provisions on costs of sales required to be re- covered by Defense. Defense Manual 7290.3-M prescribes Defense's pricing policy which is intended to implement the cost recovery provisions of the act. Our review disclosed the following instances which led to un- derbillings of about $4.6 million during fiscal year 1982: --The military services did not bill for all required costs of materials used in overhaul and repair worc, undercharging by an estimated $3.1 million.. An October 1981 Defense policy (903041)

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