Defense Trade

Last year, the Defense Department (DOD) and its contractors planned to sell to foreign countries defense equipment and services worth about $44.3 billion. One of the U.S. government's goals in exporting defense items is to allow DOD to meet its defense requirements at less cost. To determine whether DOD is maximizing this benefit, GAO reviewed the sales of the following five major weapon systems: the Hellfire Missile, the Advanced Medium Range Air-to-Air Missile, the High Mobility Multipurpose Wheeled Vehicle, the Black Hawk Helicopter, and the Aegis Weapon System. GAO found that although DOD reduced its cost to buy the five weapon systems when the systems were also sold to foreign governments, DOD did not maximize the potential for savings. In addition, Congress lacked information that would have helped it oversee weapons systems acquisitions and export sales.

GAO noted that: (1) DOD saved at least $342 million on its purchases of the five systems because either DOD or its contractors also exported the systems to foreign governments; (2) however, DOD has not developed guidance aimed at maximizing savings from export sales, and acquisition personnel sometimes made decisions that reduced potential savings; (3) DOD could have realized greater savings if it had combined purchases for foreign governments with purchases for the U.S. military, negotiated prices for export sales without giving up U.S. system price reductions, or required the contractor to perform work in the most economical manner even if such performance affected offset agreements; (4) savings would also have been greater if DOD had ensured that the export sales prices always included a proportionate share of the sustaining engineering and program management costs; (5) the full impact of contractor direct sales on the price of DOD weapon systems cannot be assessed because information concerning the savings from combining material purchases and from learning efficiencies was not available; (6) consistent with the Arms Export Control Act, DOD waived about $378 million of costs to develop the five systems and establish their production facilities; (7) DOD waived these costs because the buyer was a North Atlantic Treaty Organization ally and the sale meant that the United States and its allies would be using similar battlefield weapon systems; (8) when DOD notified Congress of potential sales of the five systems, it did not provide, nor was it required to provide, information on whether export sales reduced the price of weapon systems being acquired for the U.S. military or whether DOD waived nonrecurring costs associated with the sales; (9) DOD did not always provide information on savings from export sales that Congress could use to assess the President's request for budgetary authority to purchase the five systems; (10) nor did DOD always reduce its portion of the President's budget to reflect export sales savings; (11) only the Air Force consistently considered the impact of export sales in developing a program's budget; (12) beginning in fiscal year 1996, the Air Force voluntarily reduced the AMRAAM budget to reflect export-related reductions in the price of U.S. missiles; (13) the Navy told GAO that its budget was reduced in 2 of the 5 years that it exported the Aegis Weapon System; (14) the Army made no reductions to the Hellfire, Black Hawk, or HMMWV budgets; and (15) instead, Army program offices used excess appropriations to buy additional systems or system components, or to meet unspecified needs.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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