Defense Industry:

Restructuring Costs Paid, Savings Realized, and Means to Ensure Benefits

NSIAD-99-22: Published: Dec 1, 1998. Publicly Released: Dec 1, 1998.

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Louis J. Rodrigues
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Pursuant to a legislative requirement, GAO provided information on: (1) the six business combinations for which the Department of Defense (DOD), as of September 30, 1998, had certified that the projected restructuring savings should exceed associated restructuring costs; and (2) on a seventh combination, Hughes Aircraft Company's acquisition of General Dynamics' missile operations.

GAO noted that: (1) in April 1998, GAO reported that DOD estimated it would save a net of $3.3 billion between 1993 and 2000 from restructuring activities carried out by the seven business combinations; (2) GAO also reported that DOD estimated it had realized savings of about $1.9 billion as of August 1997, or more than half of the expected savings; (3) now, DOD estimates it has realized savings of about $2.1 billion, or 64 percent of the expected savings; (4) while GAO determined that selected restructuring activities had lowered the operational costs of the business combinations by hundreds of millions of dollars, it was not feasible to develop a methodology for precisely determining how contract prices were affected; (5) to make such a determination requires isolating the impact of restructuring from nonrestructuring-related factors, such as changes in business volume, quantities purchased, and accounting practices; (6) DOD, the contractors, and GAO were not able to isolate the effects of restructuring from those of other factors; and (7) however, other methods exist through which DOD can ensure that it receives its equitable share of restructuring savings in a timely manner.

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