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Defense Contractor Restructuring: First Application of Cost and Savings Regulations

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Report Type Reports and Testimonies
Report Date April 10, 1996
Report No. NSIAD-96-80
Subject
Summary:

The National Defense Authorization Act for Fiscal Year 1995 restricts Defense Department (DOD) payments to contractors for costs associated with business combinations. Specifically, the law prohibits payment of restructuring costs, such as those associated with closing facilities and eliminating jobs, until a senior DOD official certifies that projected savings from the restructuring are based on audited data and should reduce DOD's overall costs. This report discusses whether the certification process (1) was carried out in accordance with the interim regulations and (2) reduced DOD's contract prices. GAO focuses on the United Defense, Limited Partnership business combination of FMC Corporation's Defense Systems Group and Harsco Corporation's BMY-Combat Systems Division--two manufacturers of tracked combat vehicle for the Army. This business combination is particularly significant because restructuring at United Defense could be a model for future DOD restructuring efforts.

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