Defense Department continues to overpay contractors

The Defense Department continues to make improper payments to contractors for their services, and reimbursements take longer than they should, according to a General Accounting Office report released Monday. In its report, GAO looked at 39 large government contractors, including Lockheed Martin Corp. and Boeing, who returned overpayments totaling $351 million in fiscal 1999. The contractors participating in GAO's study also reported $41 million in underpayments during the same period. Contract administration actions accounted for 77 percent of the overpayments, while billing or payment errors made up 18 percent. According to the Defense Finance and Accounting Service, the government overpaid contractors at least $670 million in fiscal 1999 and nearly $1 billion in fiscal 2000. "While these amounts represent a small portion of the total amount paid to contractors, they represent a substantial amount of cash in the hands of contractors beyond what is intended to finance and pay for the goods and services bought by DoD," said the report. GAO also said the government is not being promptly reimbursed: Contractors took more than 30 days to repay at least 39 percent of the $351 million they owed the government.

More than 70 percent of underpayments took longer than 30 days to resolve. The 1982 Prompt Payment Act and federal acquisition regulations require agencies to pay invoices for delivered items within 30 days. According to GAO, overpayments to contractors frequently occur when discrepancies arise between the actual costs incurred during a project and the original cost estimate. Contracting officers must monitor project progress and take action if progress lags behind payments, adjusting liquidation rates accordingly. The contracting officer is responsible for ensuring the government receives a refund when there is a change in the project schedule or quantity of items delivered by the contractor. Contractors attributed underpayments to cost miscalculations on the part of the Defense Finance and Accounting Service. GAO recommended that the Defense Contract Management Agency routinely review Defense data to uncover the reasons for overpayments and encourage contractors to refund excess payments promptly. The Defense Department partially agreed with GAO's findings, and said it plans to do an initial review of overpayment data to see whether regular review is necessary. However, the department disputed GAO's definition of "excess overpayments," instead characterizing the recoupment of money from contractors or additional payments to them as a normal part of the process. "It is misleading to characterize these amounts as excess payments. These amounts were, in general, proper at the time they were paid to contractors. They become 'excess payments' only if the contractor delays in making repayment after the adjustment process is completed," said Deidre A. Lee, director of Defense procurement, in a response to GAO's findings.