Summary: Section 818 of the National Defense Authorization Act for Fiscal Year 1995 governs payments made by the Defense Department (DOD) to contractors for costs associated with business combinations, including mergers and acquisitions. Normally, after a business combination, a new company will undertake restructuring activities, such as closing plants, eliminating jobs, and relocating workers. Section 818 prohibits payment of restructuring costs until DOD officials certify that projected savings from the business combination are based on audited cost data and should reduce costs to DOD. DOD regulations do not comply with section 818 requirements because all restructuring costs associated with defense contractor business combinations, for which contractors may be reimbursed, will not be subject to the section's certification requirements. By excluding some restructuring costs that should be subject to section 818 certification requirements, DOD cannot ensure that payment of these costs are made only when in the best interests of the United States. Further, the regulations cannot ensure that DOD will be able to meet the section's annual reporting requirements to Congress. Moreover, DOD plans to pay restructuring costs up to the amount of savings projected to result from a business combination, which would result in the payment of those costs without significant projected savings to DOD.
