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PSAD-79-79 1 (1979-04-19)

handle is hein.gao/gaobaazal0001 and id is 1 raw text is: 0 (57 UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 PItOCURM ENT AND SYFTKM$ ACQUISITION DIVISION APR 1 9 1979 B-163058 The Honorable Harold Brown The Secretary of Defense Attention: Assistant for Audit Reports Room 3A336 ASD (Comptroller) I 09157 Dear Mr. Secretary: We are presently conducting a review of change management and other aspects of the Navy's ship acquisition process for selected programs. The results of our review wi~l be covered later in a report to the Congress. However, anLissue relating Yo ecalation provisions linder shipbuilding contracts warrants 2 your . c t i of7 - ~Under some cu rrent shipbuildinlg SontKActs the Navy is paying alatio on costs not su5I-ei- to inflation.- -Navy may soon negotiate a 6n----trat -ith- itiiar provisions under the current request for proposals (N00024-78-R-2430) for 8 FFG-7 Class friqates plus an option for as many as 13 addi- tional frigates with Bath Iron Works Corporation or Todd Pacific Shipyards Corporation. We believe that your action is needed to prevent such excessive and unwarranted payments under the proposed contracts. BACKGROUND Because construction of a naval shiD takes several~ytars#' construction would be a great risk to shipbuilders if t-ey were not protected from costisncreases over which they have little control2 Shipbuilders are protected from these increases by special contract clauses which provide for escalation payments/ Basically, this means that if ship- builders' labor rates and material prices go up, they get paid for the increases during a designated period of time. Escalation payments are computed based on Bureau of Labor Statistics material and labor indexes of the shipbuilding industry. 0O503-S ,4A T,

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