Defense Budget:

Contingency Funds in Three Aircraft Procurement Programs

NSIAD-88-17BR: Published: Oct 9, 1987. Publicly Released: Nov 17, 1987.

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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) and the military services' policies on management reserves and other contingency funds and the amount of such funding in three aircraft programs.

GAO identified two types of contingency funds the Navy and the Air Force use in their aircraft programs, including: (1) engineering change order funds for anticipated but unknown design changes; and (2) risk funds for unknown costs associated with technical complexities and schedule uncertainties. GAO found that: (1) the most current engineering change order program estimates include about $673.4 million for the B-1B aircraft, $11.4 million for the C-5B aircraft, and $29 million for the F/A-18 fighter; (2) program officials did not separately identify risk funds in their cost estimates; and (3) certain contractors had established management reserves, which were not contingency funds, but amounts they withheld from their product divisions for management control purposes.

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