Multiyear Contracting and Its Impact on Investment Decisions

NSIAD-88-125: Published: May 10, 1988. Publicly Released: Jun 13, 1988.

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Pursuant to a congressional request, GAO reviewed the effect of the Department of Defense's (DOD) multiyear contracting method of acquiring weapon systems on: (1) prime contractors' and subcontractors' manufacturing equipment investments; and (2) the competitive environment at the subcontractor level.

GAO found that multiyear contracting: (1) influenced two of six prime contractors it reviewed to invest $76 million in capital; (2) influenced 81 percent of the 263 subcontractors who made capital investments; (3) offered subcontractors greater assurance of a stable future defense business than did annual contracting; (4) did not influence the investments of prime contractors who felt that their programs were stable under annual contracting or who did not perceive a need for additional investments; and (5) facilitated subcontractor investment in manufacturing equipment without limiting price competition at the subcontractor level. GAO believes that multiyear contracting has helped to improve the defense industrial base.

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