Defense Contractor Restructuring:

Benefits to DOD and Contractors

NSIAD-98-225: Published: Sep 10, 1998. Publicly Released: Sep 17, 1998.

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Pursuant to a congressional request, GAO provided information on seven defense contractor business combinations to determine whether the Department of Defense (DOD) is realizing savings as a result of such restructuring activities, focusing on: (1) the amount of restructuring savings expected by DOD from the seven business combinations; (2) the impact of selected restructuring activities on the contractors' cost of operations; and (3) whether savings could be traced to contract prices.

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.

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