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092991 1 (1971-05-18)

handle is hein.gao/gaobacwwc0001 and id is 1 raw text is: UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 DEFENSE DIVISION Comander Naval b1hip Systems Command Washington, D. C. 20360 Attention: M. C. Greer (Ships 08) Dear Sir i In August 1967 the Jeaeral Accounting Office (GAO) issued a report to the Congress (B-156313) concerning the pricing of neclear submarine propulsion equipment that General Electric Company, Medium Steam Turbine Generator and Gear Department (GE) furnished under sub- contract to General Dyeamics Corporation, Electric Boat Division. The Navy had negotiated the subcontract with GE. The report showed that a significnat pOrtion of GE's certified costs were based on the cost of processing 16 castings in its own plant, although before the pricing certificate was executed on February 3, 19614, GE had requested and received quotations from vendors for fully processed castings at substantially lower costs. Two quotes wore not disclosed to the Navy during negotiations. .e estimated thats if the Navy had been told about these quotes a price reduction of about $561,000 could have been negotiated. The Navy agreed that the quotes for castings were significant pricing data which should have been submitted by GE for consideration in price negotiations. The Navy said that action would be taken to recover an appropriate amount. At the time of our examination in 1965 and 1966, contractors were not permitted by Department of Defense regulations to offset overestimated costs by underestimated costs. After the Cutler-Eammer (Court of Claims) decision, the DepOrtment of Defense revised its re4- ulations in March 1970 to permit recognition of properly supported and verified claims by contractors for such offsets. In April 1970 GE advised the Navy that it had found underestimates of about $66,000 as offsets against the potential price reduction of *564,000 for castings. BEST DOCUMMJL AVAILABLE

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