Defense Contracting:

Terminating Major Weapons Contracts for the Government's Convenience

NSIAD-91-255: Published: Aug 30, 1991. Publicly Released: Aug 30, 1991.

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Pursuant to a congressional request, GAO provided information on the Department of Defense's (DOD) procedures for terminating contracts for the convenience of the government.

GAO found that: (1) federal regulations governing contract terminations for convenience, including termination clauses and allowable costs, have changed only slightly over the last decade; (2) DOD termination procedures implement and supplement federal regulations or satisfy particular needs of the specific military service and do not conflict with federal regulations; (3) convenience termination procedures are unique to the government; (4) planned changes to DOD convenience termination procedures are generally intended to address administrative matters and to streamline existing regulations; (5) DOD does not have specific criteria for identifying potential candidates for termination or for determining which weapons systems, if any, should be terminated, but DOD uses an approach in evaluating weapon systems progress that helps identify systems experiencing problems; and (6) modifications to the existing DOD cost reporting system could be made to provide more reliable termination cost estimates for major weapon systems.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD disagreed with the recommendation. For the vast majority of DOD contracts that proceed normally to completion, rough estimates are considered adequate. Further, it is DOD's position that no additional coverage is necessary for the report. In light of DOD's response, GAO plans no further action.

    Recommendation: Although the Contract Fund Status Report provides some information on potential termination costs, the Secretary of Defense should modify it to provide DOD management more accurate information for decisionmaking. To obtain more reliable contract termination cost estimates, the Secretary of Defense should identify and adopt the necessary cost-effective improvements to the existing cost reporting system. As a minimum, consideration should be given to expanding the reporting coverage and identifying the types of termination cost information from contractors.

    Agency Affected: Department of Defense


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