Army Contract Adjustment Board:

Decision to Grant Contract Relief to Action Manufacturing Company

NSIAD-91-230: Published: Jul 15, 1991. Publicly Released: Jul 15, 1991.

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Pursuant to a congressional request, GAO provided information on the contractual relief the Army Contract Adjustment Board (ACAB) granted to a defense contractor which had ceased operations due to financial problems.

GAO found that: (1) ACAB authorized greater debt relief than the contractor requested to cover the contractor's bank debt and to provide adequate working capital to enable the contractor to continue producing munitions and fire control devices the Army needed; (2) ACAB included cost-plus-no-fee contracts and the contractor's bank debt in the $24.5 million relief ceiling to eliminate the required repeated contractual modifications resulting from increased contract costs; (3) ACAB concluded that the contractor's continued performance on existing contracts and its continued operation were essential to national defense because of its impact on the Army's mobilization capability, production at the Army's ammunition plants and arsenals and other government contractors, and readiness; (4) the Army financed the relief from its Conventional Ammunition Working Capital Fund; and (5) ACAB has granted four awards since 1986 totalling $36 million, including the $24.5 million awarded in this case.

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