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Preliminary Observations on DOD Estimates of Contract Termination Liability

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Congressional rept.

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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. 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.

Subject Categories:

  • Economics and Cost Analysis
  • Government and Political Science

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