Defense Industry Restructuring: Cost and Savings Issues.
Abstract
Over the last several years, defense contractors have attempted to become more efficient and competitive by such activities as closing or combining facilities and eliminating jobs. DOD has always paid for its share of the costs of these activities when they were undertaken as part of an internal restructuring by a single contractor. Until July 1993, however DOD did not pay for restructuring costs on certain contracts transferred from one company to another company as a result of a business combination. At that time, DOD changed its practice and began allowing restructuring costs to be charged to these contracts as long as certain conditions were met. Principally, such costs were allowed as long as projected savings exceeded projected costs. The dollar impact of this decision may be less than some anticipated. DOD estimates that only 10 percent of the costs DOD had paid through September 1996 resulted from the change in practice. As of March 31,1997, five combinations had gone through a certification process that is required before DOD pays restructuring costs. We recently completed an evaluation of four of the five certified combinations, as well as one additional combination that DOD included in its reports to Congress. Overall, we found that DOD estimated its share of projected restructuring costs was about $755 million, while its estimated share of the savings resulting from these combinations was at least $3.3 billion.
Document Details
- Document Type
- Technical Report
- Publication Date
- Apr 01, 1997
- Accession Number
- ADA323866
Entities
Organizations
- United States Government Accountability Office