An Assessment of the Army's Multiple Launch Rocket System Multiyear Contract

NSIAD-86-5: Published: Oct 28, 1985. Publicly Released: Oct 28, 1985.

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Pursuant to a congressional request, GAO reviewed the Army's Multiple Launch Rocket System's (MLRS) multiyear contract and the validation of the claimed savings and other benefits to the government.

GAO noted that the Army awarded a multiyear contract with options which extended over a 5-year period, covering fiscal years 1983 through 1987, and contained provisions to purchase materials in advance of annual requirements. GAO found that: (1) the Army improperly exercised the first option for advance material purchases because it resulted in its exceeding the 5-year statutory limit on multiyear contracts; (2) the Army justified its multiyear contract for the MLRS claiming that the contract, with options, would result in $200 million in savings; and (3) the projected savings was based on the difference between the estimated price of seven successive annual contracts and the negotiated value of the multiyear contract. GAO also found that: (1) the Army did not compare the estimated savings of a 5-year multiyear contract without options; (2) a large part of the Army's estimated savings was attributed to the fact that the contractor purchased certain raw materials and components earlier, and in more economical quantities, than it would have under an annual contract; (3) MLRS multiyear contract options reduced, rather than increased, savings because of the early expenditure of funds and the 5-year delay in realizing benefits; and (4) although the contract would likely benefit the government through monetary savings and possible industrial base enhancements, it was impossible to validate whether or to what extent the benefits would broaden the industrial base because the Army did not establish a baseline to measure improvements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of Defense (DOD) agreed with this recommendation and plans to include this type of analysis in the future along with submission of data to Congress for approval of the multiyear program for any candidates that elect to use similar options.

    Recommendation: The Secretary of Defense should separately identify and justify savings associated with multiyear contract options when seeking multiyear contract approval from Congress.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD agreed that judgmental factors must be considered. However, the Army believes that the cost and risk avoidance is of such magnitude that proceeding with the option is in the best interest of the government.

    Recommendation: The Secretary of the Army should determine whether the judgmental factors will offset the decreased savings sufficiently, or in total, to justify proceeding further with the contract options under the MLRS even if legislation is enacted to allow the Army to legally exercise the options.

    Agency Affected: Department of Defense: Department of the Army


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