Defense Contractor Restructuring

In response to declines in military spending, defense contractors have been trying to reduce costs through restructuring and consolidations. For the seven business combinations GAO reviewed, the Pentagon expects to save about $3.3 billion from contractor restructuring efforts, including layoffs, facility closings, and relocations of employees and equipment. GAO found that restructuring activities had lowered the operating costs at the seven business combinations by hundreds of millions of dollars. These reductions benefited the Defense Department (DOD) because military contract costs were lower than they would have been if the restructuring activities had not occurred. Determining the precise impact of restructuring on specific contract prices requires isolating the impact of these activities from nonrestructuring-related factors, such as changes in business volume, quantities purchased, and accounting practices. DOD, selected business segments, and GAO were generally unable to isolate the effects of restructuring from those of other factors.

GAO noted that: (1) for the seven business combinations GAO reviewed, DOD expects that it will save about $3.3 billion from contractor restructuring activities, such as laying off workers, closing facilities, and relocating employees and equipment; (2) GAO's assessment of selected restructuring activities showed that they had lowered the cost of operations at the seven business combinations by hundreds of millions of dollars; (3) such reductions benefited DOD because the costs of defense contracts were lower than they would have been if the restructuring activities had not occurred; (4) determining the precise impact of restructuring on specific contract prices requires isolating the impact of these activities from nonrestructuring-related factors, such as changes in business volume, quantities purchased, and accounting practices; and (5) DOD, selected business segments, and GAO were generally not able to isolate the effects of restructuring from those of other factors.