GAO Analysis of Projects Proposed by DOD for Multiyear Contracting in Its FY 1983 Budget Request

GAO examined nine major systems and three other Department of Defense (DOD) proposed projects planned under multiyear contracts in fiscal year 1983 to assess the: (1) accuracy and validity of the cost savings estimates; (2) appropriateness of the projects; (3) adequacy of the standards of approval for successful projects; (4) effect of multiyear contracting on flexibility in service budgets and the overall Defense budget; (5) effectiveness of multiyear contracting as a management device to improve the industrial base; and (6) appropriateness of spare parts procurement through multiyear contracting.

The multiyear contract savings estimates for all 12 projects reviewed were primarily based on budgetary data, judgmental estimates, and undocumented data from the potential prime contractors or subcontractors. In the opinion of GAO, the budgetary nature of the justification data was insufficient to establish the reasonableness of the claimed savings. Thus, a meaningful comparison of the relative costs of annual or multiyear contracting methods was impossible. DOD did not apply present value discounting or cost-benefit estimates in constant dollars as required. GAO found no reason to question the DOD determination that the 12 proposed projects are critical for national security needs. However, the contract savings projected by DOD were unreliable. GAO found no reason to question the DOD commitment to the proposed projects although no effort has been made to determine the relative priority of the selected programs in the event that total budget requests are not granted. Except for one project, the need for the requirement has remained substantially unchanged. GAO did have some reservations about the design stability of one proposed program. DOD has not followed present value discounting techniques in estimating multiyear contract savings. On at least three projects, planned procurement strategies have not enhanced competition, nor will the proposed contracts significantly enhance the industrial base, though there are opportunities to realize increased savings through the multiyear contracting of spare parts.