Summary: Citing the dissolution of the Soviet Union and the reduced nuclear threat, the President announced in January 1992 an end to production of the Advanced Cruise Missile. The Defense Department plans to cap procurement at 640 missiles, including the purchase of 120 missiles authorized for fiscal year 1992. In GAO's view, however, the purchase of the additional 120 missiles may be unnecessary. While the Air Force plans to buy no more than 520 missiles, the Defense Department had not concurred with this decision as of April 1992. A major consideration by the Air Force in limiting procurement to 520 missiles was its need to find funding to cover prior-year missile contract funding shortfalls. The shortfalls, estimated at $121.2 million, mainly arose from the suspension of deliveries while design and quality problems were being resolved. The Air Force, having determined that enough prior-year funds were not available to cover the shortfalls, partially terminated the contract for fiscal year 1987 and 1988 missiles. The Air Force immediately awarded a new letter contract to continue the work that was being done under the partially terminated contract and used funds appropriated for fiscal year 1992. GAO is concerned about the potential for cost increases, as well as the legal and programmatic issues that may arise from these actions. GAO plans to continue to review these matters.
