Collecting Research and Development Costs on Commercial Military Sales

NSIAD-86-44: Published: Feb 28, 1986. Publicly Released: Feb 28, 1986.

Additional Materials:


Joseph E. Kelley
(202) 512-4128


Office of Public Affairs
(202) 512-4800

GAO reviewed the Department of Defense's (DOD) procedures for identifying, monitoring, and collecting nonrecurring research, development, and production costs applicable to commercial sales licensed for export by the Departments of State and Commerce.

GAO noted that prior internal audits and congressional reports have concluded that millions of dollars have been lost because effective procedures have not been established for the collection of nonrecurring research and development costs. GAO found that: (1) DOD is not aware of most commercial sales agreements between defense contractors and foreign entities; (2) DOD cannot ensure that recoupments are collected; (3) although commercial sales of defense-related articles between U.S. companies and foreign entities require U.S. export licenses, State grants most licenses without consulting DOD; and (4) although Commerce is responsible for identifying products that need export controls, the vast majority of applications for Commerce export licenses involve low-technology products, which do not involve significant military risks and, therefore, DOD does not review those. GAO also found that: (1) the military services were not aware of 44 State-issued licenses which carried recoupment charges; (2) 14 of the 52 Commerce-issued licenses warranted a recoupment charge; (3) the descriptions used on the licenses were not sufficient to determine what was being exported or the correct charge; (4) U.S. representatives did not always forward contractor payments to the appropriate military service in a timely manner; and (5) although there are procedural deficiencies in the collection of nonrecurring costs, DOD has collected most nonrecurring costs associated with commercial sales.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Q1112 report was revised to require identification of the contractor liable for nonrecurring charges. The revision is reflected in enclosure 5 to DOD Directive 2140.2.

    Recommendation: The Secretary of Defense should take action to revise the Q1112 report to include contractor identity.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: Defense Acquisition Circular 88-5, effective May 1, 1989, stipulates that, if the recoupment amount becomes an issue, the military departments must request guidance from DSAA within 90 days.

    Recommendation: The Secretary of Defense should take action to ensure that the Defense Security Assistance Agency (DSAA) and the military departments develop and implement procedures to surface disputes within their respective areas of responsibility.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: Commerce has determined that it will not send copies of its licensse to DOD, since the Export Administration Act, section 12c, prohibits the disclosure of license information.

    Recommendation: The Secretary of Defense should take action to develop procedures, in conjunction with the Secretaries of State and Commerce, requiring that DOD be advised of shipments of more than $1 million.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: Defense Acquisition Regulation 88-5, effective May 1, 1989, requires that each military department designate a focal point to maintain a central database on established charges. The focal point must ensure that proper notification of sales subject to recoupment has been made and that payment has been received within 30 days following delivery.

    Recommendation: The Secretary of Defense should take steps to ensure that a focal point for monitoring commercial sales is designated.

    Agency Affected: Department of Defense


Explore the full database of GAO's Open Recommendations »

Feb 8, 2018

Sep 28, 2017

Jun 29, 2017

May 24, 2017

Apr 27, 2017

Jul 20, 2016

Apr 8, 2016

Jan 20, 2016

Looking for more? Browse all our products here