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GAO-14-107R 1 (2013-11-12)

handle is hein.gao/gaobaahkj0001 and id is 1 raw text is: G A O U.S. GOVERNMENT ACCOUNTABILITY OFFICE 441 G St. N.W. Washington, DC 20548 November 12, 2013 Congressional Committees Preliminary Observations on DOD Estimates of Contract Termination Liability This report responds to Section 812 of the National Defense Authorization Act (NDAA) for Fiscal Year 2013, which mandates that we report to the congressional defense committees on the extent to which the Department of Defense (DOD) is considering potential termination liability as a factor in entering into and terminating covered contracts.1 Section 812 also mandates that DOD assess its relevant acquisition guidance and take appropriate actions to ensure that program managers for major defense acquisition programs (MDAP) are preparing estimates of potential termination liability for covered contracts.2 This is the first of two reports we plan to issue in this area for these committees. The second report, in response to a mandate in the Senate Report, 112-173, on the NDAA for Fiscal Year 2013, addresses program cancellations and will be issued in early 2014. To meet our requirement under Section 812, this report (1) describes the results of DOD's assessment, and (2) presents preliminary observations on termination liability estimates. To conduct this work, we reviewed DOD's assessment, in which DOD reviewed relevant acquisition guidance and collected information on a sample of six MDAPs. We also interviewed DOD officials responsible for conducting the assessment. In addition, we leveraged our ongoing work looking at program cancellations to further assess DOD efforts to consider potential termination liability. We interviewed DOD officials, obtained documentation on guidance and directives, and analyzed termination cost data for selected MDAP contracts terminated from 2004 through 2011. We are also collecting information on whether selected DOD programs have been requiring contract termination liability estimates before award and during the course of a contract. As part of our annual weapons assessment, we selected a non-generalizable sample of weapons programs that represent Air Force, Army and Navy, that cover a range of platforms including aircraft, ships and satellites, and that represent programs in both development and production phases. We requested answers to a standard set of questions to determine how DOD officials consider termination liability costs prior to contract award and before contract termination, and to identify guidance used in making those decisions. We will report on these and other findings in our early 2014 report on program cancellations. 1Pub. L. No. 112-239 (2013). The NDAA does not define termination liability, nor did DOD when conducting its assessment. For consistency with the Contract Funds Status Reports used by DOD, in this report we use the term termination liability to include costs incurred because of termination, as well as profit or fee owed. We do not include cost incurred for the work performed. 2The Act defines a covered contract as a contract for the development or production of a major defense acquisition program for which potential termination liability could reasonably be expected to exceed $100,000,000. GAO-14-107R DOD Contract Termination Page 1

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