Defense Contracting: Terminating Major Weapons Contracts for the Government's Convenience

The U.S. Government Accountability Office (GAO) is an independent agency that works for Congress. The GAO watches over Congress, and investigates how the federal government spends taxpayers dollars. The Comptroller General of the United States is the leader of the GAO, and is appointed to a 15-year term by the U.S. President. The GAO wants to support Congress, while at the same time doing right by the citizens of the United States. They audit, investigate, perform analyses, issue legal decisions and report anything that the government is doing. This is one of their reports.

The nation's long-term fiscal imbalances will likely make DOD's 1.6 trillion planned investment in new weapon systems unsustainable. Thus, it is critical that DOD retains the flexibility to end programs and contracts when necessary and appropriate. Although the federal government generally has the legal right to terminate contracts for convenience, defense stakeholders have sometimes expressed concerns that it will cost more to terminate a contract than to complete it. To address this perception, GAO examined (1) how expected contract termination costs and other factors affect DOD decisions on whether to end programs and contracts; (2) the circumstances under which it would cost more to terminate a contract for convenience than to complete it; and (3) the options DOD has for retaining value or reducing costs, when DOD ends programs or contracts. To do this, GAO examined DOD data on terminated contracts over $100 million; reviewed laws, regulations, and guidance; and met with key DOD officials. GAO recommends that DOD review, and as needed amend, guidance on terminations across the military services and DOD agencies to ensure that termination guidance identifies the conditions under which it is appropriate to end programs or contracts, and provides knowledge needed to use terminations as an investment portfolio tool. DOD agreed.