Defense Contractor Restructuring; DoD Risks Forfeiting Savings on Fixed-Price Contracts.
Abstract
Section 818 of the National Defense Authorization Act for Fiscal Year 1995 (P.L. 103-337) requires us to report periodically to the Congress on the implementation of the Department of Defense's (DOD) policy on defense contractor restructuring. We have issued three reports pursuant to this legislative requirement. This report focuses on DOD's use of contract price adjustment clauses, also called reopener clauses, which can be used to ensure that DOD receives its fair share of contractor restructuring savings on fixed-price contracts awarded to companies involved in a business combination between the time a combination is announced and the time that restructuring savings are reflected in the mechanism used for pricing contracts. Specifically, we discuss (1) DOD'S limited use of reopener clauses for these contracts and (2) the potential benefits of using reopener clauses in future business combinations. As a result of the significant decline in defense expenditures since the late 1980s, defense contractors have been consolidating and restructuring their operations to increase efficiencies and become more competitive in the defense marketplace. Many of the consolidation and restructuring activities resulted from defense contractor acquisitions and mergers. In July 1993, the Under Secretary of Defense for Acquisition concluded that it was in the government's best interest to encourage defense contractors to consolidate and restructure their operations, which was expected to reduce costs to DOD. To achieve that goal, the Under Secretary stated that DOD would pay restructuring costs on contracts transferred as part of a merger or acquisition if the business combination was expected to result in overall reduced costs for DOD or preserve a critical capability that might otherwise be lost.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jul 01, 1998
- Accession Number
- ADA349552
Entities
Organizations
- United States Government Accountability Office