Costs Impacts of Major System Cancellation on Acquisition Contracting and the Industrial Base

Drastic cutbacks in defense spending as a result of domestic economic problems and a reduced threat have been manifest into the reduction andor redeployment of the Armed Forces of the United States and attempts at diversification on the part of the industrial base. Currently, programs such as the Line of Sight Anti-Tank LOSAT missile are being stretched into future years in order to reduce the current impact of budget reductions. Eventually, selected programs will be eliminated or terminated based on zeroed budgets, forcing the Department of Defense DoD and industry to realize the cost and economic impact associated with the cancellation of major systems. Several weapon systems proposed for acquisition by DoD in early FY 93 have been terminated for the convenience of the Government. Terminated for Convenience T4C was developed principally as a means to end the massive procurement efforts associated with major wars. The termination clause allows the Government authority to escape many contractual obligations. The government refuses to continue contractual performance and settles with contractual termination. The contractor is limited to costs incurred, profit on work done and the costs of preparing the termination settlement proposal.