Defense Industry

GAO reported in April 1998 that the Defense Department (DOD) estimated it would save $3.3 billion between 1993 and 2000 from restructuring activities carried out by seven business combinations. GAO also reported that DOD estimated that it had realized savings of about $1.9 billion as of August 1997, or more than half of the expected savings. Now, DOD estimates it has realized savings of about $2.1 billion, or 64 percent of the expected savings. Although GAO found that selected restructuring activities have lowered the operational costs of the business combinations by hundreds of millions of dollars, it was not feasible to develop a methodology to precisely determine how contract prices were affected. To make such a determination requires isolating the impact of restructuring from nonrestructuring-related factors, such as changes in business volume, quantities purchased, and accounting practices. DOD, the contractors, and GAO were unable to isolate the effects of restructuring from those of other factors. However, other methods exist through which DOD can ensure that it receives its fair share of restructuring savings in a timely manner.

GAO noted that: (1) in April 1998, GAO reported that DOD estimated it would save a net of $3.3 billion between 1993 and 2000 from restructuring activities carried out by the seven business combinations; (2) GAO also reported that DOD estimated it had realized savings of about $1.9 billion as of August 1997, or more than half of the expected savings; (3) now, DOD estimates it has realized savings of about $2.1 billion, or 64 percent of the expected savings; (4) while GAO determined that selected restructuring activities had lowered the operational costs of the business combinations by hundreds of millions of dollars, it was not feasible to develop a methodology for precisely determining how contract prices were affected; (5) to make such a determination requires isolating the impact of restructuring from nonrestructuring-related factors, such as changes in business volume, quantities purchased, and accounting practices; (6) DOD, the contractors, and GAO were not able to isolate the effects of restructuring from those of other factors; and (7) however, other methods exist through which DOD can ensure that it receives its equitable share of restructuring savings in a timely manner.