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GAO-15-496R 1 (2015-05-18)

handle is hein.gao/gaobaaixe0001 and id is 1 raw text is: G A U.S. GOVERNMENT ACCOUNTABILITY OFFICE 441 G St. N.W. Washington, DC 20548 May 18, 2015 The Honorable Thad Cochran Chairman The Honorable Richard J. Durbin Vice Chairman Subcommittee on Defense Committee on Appropriations United States Senate The Honorable Rodney Frelinghuysen Chairman The Honorable Peter Visclosky Ranking Member Subcommittee on Defense Committee on Appropriations House of Representatives Defense Contracting: Observations on Air Force Use of Undefinitized Contract Actions To meet urgent needs, the Department of Defense (DOD) can authorize contractors to begin work and incur costs before reaching final agreement on contract terms, specifications, or price, using an undefinitized contract action (UCA).1 This type of contractual action is considered risky for the government because contractors have little incentive to control costs as the government normally reimburses contractors for all allowable costs incurred during the undefinitized period. Further, the government may incur unnecessary costs if requirements change before the contract is definitized. To help minimize these risks, defense acquisition regulations generally require UCAs to be definitized within 180 days of issuance of the contract action or before more than 50 percent of the estimated contract price is obligated, whichever occurs first.2 We have previously reported on DOD's efforts to provide oversight of UCAs and meet its required definitization time frames. In June 2007, we found that DOD did not know the extent to which it was using UCAs and identified the need for the department to improve oversight and its ability to meet required definitization time frames.3 In response, the department issued a new policy in 2008 on UCA oversight and management which, among other things, required DOD components to report semiannually on UCAs with an estimated value exceeding $5 million to the Office of the Under Secretary of Defense for Acquisition, Technology & Logistics, Defense Procurement and Acquisition 1A definitized contract action is one in which all terms and conditions, including price, are agreed to by the parties to the contract at the time of contract award. 2Defense Federal Acquisition Regulation Supplement (DFARS) § 217.7404-3(a) (1) and (2). 3Defense Contracting: Use of Undefinitized Contract Actions Understated and Definitization Time Frames Often Not Met, GAO-07-559 (Washington, D.C.: June 19, 2007). GAO-15-496R Undefinitized Contractual Actions Page 1

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