How to Fund Cancellation Ceilings on Multiyear Defense Contracts: A Risk Pooling Alternative
AIR FORCE INST OF TECH WRIGHT-PATTERSON AFB OH
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This Policy Analysis Exercise begins with a brief discussion of the benefits and costs associated with multiyear procurement, then reopens the debate on how to fund the cancellation ceilings for Economic Order Quantity EOQ materials on these types of programs. EOQ materials--subsystems, raw materials such as aluminum sheet, and components ordered in the first contract year for weapons to be built in future years--are a main source of multiyear savings. Congress wants these obligations--which the Government would owe in the event of multiyear contract cancellation between years--authorized funds up- front in the first year of a program, but the Services think this policy forces other valuable programs out of their fixed budgets. In this thesis the author describes the objectives Congress, the Office of the Secretary of Defense, the Military Services, and defense contractors have for multiyear contract funding methods. After analyzing four funding alternatives he recommends that the Department of Defense and Congress adopt a Risk Pooling approach for funding cancellation ceilings on multiyear contracts in the Defense budget.
- Economics and Cost Analysis
- Logistics, Military Facilities and Supplies