United States Government Publishing Office publisher pbl distributor dst United States Government Accountability Office National Security and International Affairs Division author aut Government Organization text government publication eng GAOREPORTS Legislative Agency Publications gao legislative 2010-08-12 U.S. Government Printing Office 1998-07-17 monographic deposited born digital 24 p. GA 1.13:NSIAD-98-162 https://www.govinfo.gov/app/details/GAOREPORTS-NSIAD-98-162 P0b002ee1803a2027 f:ns98162 DGPO 2010-08-12 2011-03-24 GAOREPORTS-NSIAD-98-162 machine generated eng fdlp REPORT GAOREPORTS-NSIAD-98-162 NSIAD-98-162 Department of Defense contractors Defense procurement Contract costs Defense contracts Procurement regulation Defense cost control Overhead costs Price adjustments Fixed price contracts Letter Report NSIAD

Pursuant to a legislative requirement, GAO provided information related to defense contractor restructuring, focusing on: (1) the Department of Defense's (DOD) use of contract price adjustment clauses, also called reopener clauses; (2) DOD's limited use of reopener clauses for fixed-price contracts; and (3) the potential benefits of using reopener clauses in future business combinations.<p/>GAO noted that: (1) the time it takes for restructuring savings to be included in DOD contract prices can be considerable; (2) for the contractor business segments GAO examined, it took an average of about 21 months from the announcement of the acquisition or merger to the time that contractors reflect the restructuring savings in reduced overhead rates; (3) during this period, DOD awarded over 600 fixed-price contracts or contract modifications worth about $3.9 billion; (4) however, despite repeated recommendations from the Defense Contract Audit Agency and Defense Contract Management Command, contracting officers rarely included reopener clauses for savings in fixed-price contracts awarded during this period; (5) with reopener clauses, contract prices that were negotiated before savings and were included in overhead rates used to price DOD contracts could be adjusted downward once savings were determined, thereby reducing contract costs; (6) without reopener clauses, DOD cannot recoup its share of restructuring savings; (7) DOD contracting officers cited various reasons for not using reopener clauses; (8) these reasons included the desire to have contracts with no loose ends and concerns that the use of the clauses would cause an excessive administrative burden in renegotiating contract price adjustments; (9) another factor that appeared to influence the use of reopener clauses is the level of contractor resistance; (10) also, one contractor commented that such a clause was not required by current DOD regulations; (11) the use of reopener clauses can result in substantial savings to DOD; (12) in one case in which a reopener clause was exercised, the contract price was reduced by almost 4 percent, or about $1.8 million; and (13) unless DOD takes steps to include reopener clauses in its fixed-price contracts with companies forming business combinations, it risks losing further substantial savings resulting from contractor restructuring. https://www.govinfo.gov/content/pkg/GAOREPORTS-NSIAD-98-162/html/GAOREPORTS-NSIAD-98-162.htm https://www.govinfo.gov/content/pkg/GAOREPORTS-NSIAD-98-162/pdf/GAOREPORTS-NSIAD-98-162.pdf GAO/NSIAD-98-162 https://www.govinfo.gov/app/details/GAOREPORTS-NSIAD-98-162 Letter Report GAO/NSIAD-98-162; Defense Contractor Restructuring: DOD Risks Forfeiting Savings on Fixed-Price Contracts; Department of Defense contractors Defense procurement Contract costs Defense contracts Procurement regulation Defense cost control Overhead costs Price adjustments Fixed price contracts Title 10 Section 2325 10 U.S.C. 2325 Public Law 103-337 Public Law 105-85