Upfront Funding of Multiyear Contract Cancellation Liability: Non-Optimum Funding Strategy Today

The current funding strategy for multiyear cancellation liability is not an optimum one, especially in light of todays declining budgets for the Air Force. Air Force decision makers have not received adequate information on multiyear funding to fully appreciate the opportunities of a different funding strategy for multiyear contracts. Additionally, the financial communities within the Air Force, Office of the Secretary of Defense as well as the Congressional subcommittees have not updated their funding policies to coincide with the current decreasing budgets for defense. The end result is needless upfront funding for multiyear contracts and loss of much needed funds for ongoing defense production programs. The financial communities should review and revise their policies. Subsequently, Air Force, as well as Defense Department services, should submit their budgets without full upfront funding of termination liability for multiyear contracts.