Defective pricing schemes often inflate labor costs by which method?

• A. Subcontract to affiliated companies at inflated rates
• B. Use valid cost schedules
• C. Account for learning-curve cost reductions
• D. Use higher-wage personnel to perform work at lower rates

Answer: (A)

Defective pricing schemes aim to obtain higher reimbursements by misrepresenting costs to the government. A common tactic is routing labor through affiliated companies at inflated rates, which directly increases the labor costs billed to the government. This inflation of charges through related-party arrangements is precisely the kind of misrepresentation these schemes target.

The other options don’t fit that pattern. Using valid cost schedules reflects truthful, approved data. Learning-curve cost reductions account for expected decreases in unit cost over time, not deliberate overstatement. Using higher-wage personnel to perform work at lower rates describes a mismatch that doesn’t produce inflated costs charged to the government and isn’t a standard defective-pricing tactic.