Efforts To Reduce Cost of Defense Weapon Systems Procurement

Multiyear procurement has been under continuous discussion and study for many years. Despite its apparent benefits in potential savings, the Government has been slow to act on recommendations for its adoption. Concern has been expressed for the loss of flexibility and control which can occur when future appropriations are obligated for specific purposes for several years in advance, thus committing future managements and Congresses. GAO supports the careful and prudent use of multiyear contracting when: programs are mature and stable; requirements are firm; significant savings are achievable; risks are acceptable compared to advantages; and adequate planning and preparation has taken place with participation by key Department of Defense (DOD) officials, the Office of Management and Budget, and Congress, as appropriate. Authority for DOD to utilize multiyear contracting for major weapon systems is a totally different type of multiyear planning and contracting; it is also the area for the largest cost reduction opportunities. Recent studies suggest that multiyear contracting for production of weapons programs where requirements are quite firm can offer opportunities for savings of 10 to 20 percent of program costs. In order for this type of program to be accomplished, there must be comprehensive and sophisticated planning in full detail by DOD and its prime contractors, and between prime and subcontractors. To use multiyear contracting effectively, DOD needs three exceptions from present statutes: (1) authority to enter into multiyear contracts for the total system, materials, and parts, in advance of appropriations or without having full funding available for the entire program; (2) advance authority to exceed the statutory cancellation ceiling of $5 million; and (3) authority to provide for reimbursement of recurring costs including the cancellation ceiling. Legislation now pending lays the statutory framework for DOD to take advantage of the opportunities available from multiyear acquisition plans and contracts.