Expected Restructuring Savings

DOD expects that it will save $3.3 billion between 1993 and 2000 as a result of restructuring activities carried out by the seven business combinations we examined. Table 1 shows total projected restructuring savings and DOD’s share of these savings for each of the seven business combinations. As a result, the seven business combinations used a variety of estimating methods. DOD realizes benefits from restructuring when its contract prices are lower than they would have been if restructuring had not occurred. Restructuring Activities Lowered Contractors’ Operating Costs

Restructuring activities have enabled contractors to reduce their projected operating costs by hundreds of millions of dollars. Impact of Restructuring on Contract Prices Is Difficult to Determine

Determining the impact that restructuring activities had on a contract price requires isolating the effect of restructuring from nonrestructuring- related factors, such as changes in quantities or improvements in manufacturing efficiencies. DOD noted that it is not feasible to precisely isolate the impact of restructuring from the impact of these other factors. To assess the impact of restructuring activities on the contractors’ operational costs, we reviewed restructuring activities at 10 contractor business segments, including at least 1 segment from each business combination. We generally selected those business segments with the largest projected amount of restructuring savings.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on seven defense contractor business combinations to determine whether the Department of Defense (DOD) is realizing savings as a result of such restructuring activities, focusing on: (1) the amount of restructuring savings expected by DOD from the seven business combinations; (2) the impact of selected restructuring activities on the contractors' cost of operations; and (3) whether savings could be traced to contract prices.

What GAO Found

GAO noted that: (1) for the seven business combinations GAO reviewed, DOD expects that it will save about $3.3 billion from contractor restructuring activities, such as laying off workers, closing facilities, and relocating employees and equipment; (2) GAO's assessment of selected restructuring activities showed that they had lowered the cost of operations at the seven business combinations by hundreds of millions of dollars; (3) such reductions benefited DOD because the costs of defense contracts were lower than they would have been if the restructuring activities had not occurred; (4) determining the precise impact of restructuring on specific contract prices requires isolating the impact of these activities from nonrestructuring-related factors, such as changes in business volume, quantities purchased, and accounting practices; and (5) DOD, selected business segments, and GAO were generally not able to isolate the effects of restructuring from those of other factors.