Defense Trade:

Department of Defense Savings From Export Sales Are Difficult to Capture

NSIAD-99-191: Published: Sep 17, 1999. Publicly Released: Oct 18, 1999.

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Pursuant to a congressional request, GAO reviewed the export sales of five Department of Defense (DOD) weapon systems--the Hellfire missile, Advanced Medium Range Air-to-Air Missile (AMRAAM), High Mobility Multipurpose Wheeled Vehicle (HMMWV), Black Hawk Helicopter, and Aegis Weapon System, focusing on whether: (1) export sales reduced the price of the five weapon systems; (2) DOD waived the requirement to recover nonrecurring research and development and production costs associated with the sales; and (3) DOD included this information when notifying Congress about the sales or requesting budgetary authority to purchase weapon systems.

GAO noted that: (1) DOD saved at least $342 million on its purchases of the five systems because either DOD or its contractors also exported the systems to foreign governments; (2) however, DOD has not developed guidance aimed at maximizing savings from export sales, and acquisition personnel sometimes made decisions that reduced potential savings; (3) DOD could have realized greater savings if it had combined purchases for foreign governments with purchases for the U.S. military, negotiated prices for export sales without giving up U.S. system price reductions, or required the contractor to perform work in the most economical manner even if such performance affected offset agreements; (4) savings would also have been greater if DOD had ensured that the export sales prices always included a proportionate share of the sustaining engineering and program management costs; (5) the full impact of contractor direct sales on the price of DOD weapon systems cannot be assessed because information concerning the savings from combining material purchases and from learning efficiencies was not available; (6) consistent with the Arms Export Control Act, DOD waived about $378 million of costs to develop the five systems and establish their production facilities; (7) DOD waived these costs because the buyer was a North Atlantic Treaty Organization ally and the sale meant that the United States and its allies would be using similar battlefield weapon systems; (8) when DOD notified Congress of potential sales of the five systems, it did not provide, nor was it required to provide, information on whether export sales reduced the price of weapon systems being acquired for the U.S. military or whether DOD waived nonrecurring costs associated with the sales; (9) DOD did not always provide information on savings from export sales that Congress could use to assess the President's request for budgetary authority to purchase the five systems; (10) nor did DOD always reduce its portion of the President's budget to reflect export sales savings; (11) only the Air Force consistently considered the impact of export sales in developing a program's budget; (12) beginning in fiscal year 1996, the Air Force voluntarily reduced the AMRAAM budget to reflect export-related reductions in the price of U.S. missiles; (13) the Navy told GAO that its budget was reduced in 2 of the 5 years that it exported the Aegis Weapon System; (14) the Army made no reductions to the Hellfire, Black Hawk, or HMMWV budgets; and (15) instead, Army program offices used excess appropriations to buy additional systems or system components, or to meet unspecified needs.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Although GAO found that the Department did not consistently reduce military budgets to account for savings from export sales or provide enough information for Congress to do so, the Department plans no action because it believes that consideration of export sales is already a normal part of the budgeting process.

    Matter: Congress may wish to consider requiring that the Secretary of Defense develop guidance to ensure that budget requests reflect actual and projected savings from foreign military sales. Congress may wish to consider requiring that the Secretary of Defense provide information on projected foreign military sales savings and waivers of nonrecurring costs when notifying Congress of proposed sales. Congress may wish to consider tasking the Secretary of Defense to assess the feasibility of collecting information that would quantify the impact of contractors' direct export sales on the price of U.S. weapon systems. If DOD is successful in collecting this data, it could also be reflected in budget requests and sales notifications.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department agreed with the recommendation, and issued guidance that will assist the military services in maximizing savings from export sales.

    Recommendation: The Secretary of Defense should develop guidance that will assist the military services in maximizing savings from export sales.

    Agency Affected: Department of Defense


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