GAO has called for improvements to DoD’s practices and processes of using multi-year procurements, saying that while they may save money by easing relationships with suppliers and producers, they can also lead to losses if cancelled early and they risk future budget constraints.
Congress has been concerned about the purported savings and management of these contracts, through which the department spends $10 billion a year for weapons systems, according to GAO-08-298.
It said DoD’s process for justifying multiyear programs leaves questions about the appropriateness of some approved MYPs and the cost effectiveness of investments made for the risks assumed, as indicated by recent submissions for the F-22A and V-22 programs.
GAO said its studies of three recent MYPs showed 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, but although annual contracts also have unit cost growth, it could be more problematic for MYP’s because of the up-front investments and the government’s exposure to risk over the years, the report said.
It also said MYP savings were on average higher before changes in law called for "substantial savings" rather than a specific quantitative standard.
Other factors such as 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, according to the report.
DoD concurred with a recommendation to improve guidance and to implement a central database for maintaining records and tracking multiyear programs, and partially concurred with a recommendation to establish a process for third party validation of the costs and savings data submitted for candidate programs.
