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Highlights

The nation's long-term fiscal imbalances will likely make DOD's $1.6 trillion planned investment in new weapon systems unsustainable. Thus, it is critical that DOD retains the flexibility to end programs and contracts when necessary and appropriate. Although the federal government generally has the legal right to terminate contracts for convenience, defense stakeholders have sometimes expressed concerns that it will cost more to terminate a contract than to complete it. To address this perception, GAO examined (1) how expected contract termination costs and other factors affect DOD decisions on whether to end programs and contracts; (2) the circumstances under which it would cost more to terminate a contract for convenience than to complete it; and (3) the options DOD has for retaining value or reducing costs, when DOD ends programs or contracts. To do this, GAO examined DOD data on terminated contracts over $100 million; reviewed laws, regulations, and guidance; and met with key DOD officials.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense 1. DOD should review, and as needed amend, guidance on terminations across the military services and DOD entities to ensure that termination guidance consistently identifies the conditions under which it is appropriate to end programs or contracts, and provides knowledge needed to use terminations as an investment portfolio tool.
Closed - Implemented
As of July 2011, DOD reported that it had completed its review of Federal Acquisition Regulation (FAR) guidance, Defense Federal Acquisition Regulation Supplement (DFARS) guidance, and Department-specific guidance at the Defense Contract Management Agency and across the DOD components to ensure that termination guidance consistently identifies the conditions under which it is appropriate to end programs or contracts, and provides the knowledge needed to use terminations as an investment portfolio tool. This review resulted in one clarifying amendment to the FAR. DOD determined that no further amendments to existing guidance were needed.

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