Defense Contractor Restructuring:

First Application of Cost and Savings Regulations

NSIAD-96-80: Published: Apr 10, 1996. Publicly Released: Apr 10, 1996.

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Pursuant to a legislative requirement, GAO reviewed the Department of Defense's (DOD) implementation of defense contractor restructuring regulations to determine whether: (1) the certification process was carried out in accordance with the interim regulations; and (2) restructuring had resulted in lower DOD contract prices. The review focused on the United Defense, Limited Partnership business combination between FMC Corporation's Defense Systems Group and Harsco Corporation's BMY-Combat Systems Division, two manufacturers of tracked combat vehicles for the army.

GAO found that: (1) DOD's actions in reviewing and certifying the United Defense combination generally complied with the interim restructuring regulations; (2) as required, the Defense Contract Audit Agency reviewed United Defense's restructuring proposal, and in May 1995, a senior DOD official certified that the restructuring should result in overall reduced costs; (3) the projected net cost reduction certified by DOD represents less than 15 percent of the savings FMC and Harsco projected to DOD 2 years earlier when they sought approval for the proposed partnership; (4) subsequent to restructuring, DOD awarded United Defense a major contract to remanufacture combat vehicles at a price less that the price charged prior to restructuring; and (5) company officials believe that most of the savings resulted from the restructuring.

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