US GAO: Multi-Year Contracts Face Problems, Need Improvement

On Feb 7/08, the USA’s Congressional “Government Accountability Office” auditors released report #GAO-08-298, “DOD’s Practices and Processes for Multiyear Procurement Should Be Improved.” Multi-year procurements are used for a number of key projects, including the F-22A Raptor fighter, H-60 helicopters, and more. Official reports have cited it as a helpful factor in a number of past programs, which has kept costs down by facilitating bulk buys, plant investments, timely hiring and training, greater employment stability and hence better learning curves, et. al.

Does it always work that way? No. The GAO report examined the multi-year programs for the C-17A Globemaster III heavy transport, F/A-18 E/F Super Hornet fighter, AH-64 Apache Longbow attack helicopter, F-22A fighter, and V-22 tilt-rotor. From the GAO’s report abstract:

“Although the law has clear requirements for stable, low risk programs with realistic cost and savings estimates, lack of guidance and a rigorous process is not achieving this. It is difficult to precisely determine the impact of multiyear contracting on procurement costs. GAO studies of three recent MYPs identified unit cost growth ranging from 10 to 30 percent compared to original estimates, due to changes in labor and material costs, requirements and funding, and other factors. In some cases, actual MYP costs were higher than estimates for annual contracts. Although annual contracts also have unit cost growth, it is arguably more problematic for MYP’s because of the up-front investments and the government’s exposure to risk over multiple years. MYP savings were on average higher before changes in law called for “substantial savings” rather than a specific quantitative standard. Other factors–lower quantities of modern systems procured, stricter cancellation liability allowances, and contraction in the defense industrial base–may have also impacted savings by lessening opportunities for more efficient purchases, a key attribute of MYPs. DOD does not track multiyear results against original expectations and makes little effort to validate if actual savings were achieved. GAO’s case studies indicate that evaluating actual MYP results provides valuable information on the veracity of original estimates in the justification packages, the impacts on costs and risks from internal and external events, and lessons learned that can be used to improve future multiyear candidates and savings opportunities.”