Summary: Requiring the use of warranties in weapon system acquisitions is impractical and provides the government with few benefits. GAO estimates that the military spends about $271 million each year on weapon system warranties, which return only about five cents for every dollar spent. Congress expected warranties to improve weapon system reliability by providing a mechanism to hold contractors liable for poor performance. In practice, however, warranties have proved an expensive way for the Defense Department (DOD) to resolve product failures with contractors. The government has traditionally self-insured because its large resources make protection against catastrophic loss unnecessary. Further, it is often the sole buyer for a product and cannot share the insurance costs with other buyers. Because a contractor cannot allocate the cost of insuring against the risk of failure among multiple buyers, DOD ends up bearing the entire estimated cost. Moreover, DOD program officials said that warranties do not motivate contractors to improve the quality of their products. GAO believes that the warranty law should be repealed and the decision to obtain a warranty should be left to the program manager.
