The Secretary cannot delegate the waiver authority below the level of an Assistant Secretary of Defense or of a military department. Objectives, Scope, and Methodology

Our objectives were to determine whether the warranties being obtained for weapon systems provide the expected benefits to the government, and to assess whether the use of warranties, as required by law, is compatible with the acquisition of weapon systems. The report stated that “a failure to conduct cost-benefit analyses and to process waivers where cost-effective guarantees are not obtainable would defeat the legislative intent of congressional warranty initiatives.”
The majority of program officials we interviewed said that they do not consider waivers a viable option because of (1) the high placement of the waiver approval authority required by the warranty law (2) the potential for negative attention being focused on the program by these high level officials, and (3) the administrative burden of processing a waiver request. Applicable regulations (DFARS 246.770-7) require that a cost-benefit analysis be conducted and documented in the contract file to determine if the warranty is cost-effective. However, because DOD is usually the only buyer for a weapon system, the contractor cannot allocate the cost of insuring against that risk among multiple buyers. A warranty extends beyond acceptance the period during which the government can identify defects and require the contractor to correct them at no charge. Conclusions

While warranties may have value to a consumer in the commercial world, obtaining a warranty for a weapon system may be a flawed concept because (1) the government does not need the insurance coverage provided by a warranty and cannot share the expense of the warranty with other customers; (2) warranties are an expensive way to assure the quality of a weapon system; (3) DOD’s quality assurance activities, should provide much greater assurance of compliance with contract specifications than does a warranty; and (4) warranties may not cause contractors to improve the quality of the weapon systems’ they produce. Although DOD currently has insight into warranty costs, we found that this information is often not used in the cost-benefit analyses.
Why GAO Did This Study

GAO reviewed the Department of Defense's (DOD) use of major weapon system warranties, focusing on whether these warranties: (1) provide expected benefits to the government; and (2) are compatible with the weapon systems acquisition process.

What GAO Found

GAO found that: (1) DOD receives about $1 in direct benefit for every $19 paid to a contractor for a warranty; (2) DOD program officials rarely seek to waive the warranty requirement because waivers require the approval of an Assistant Secretary of Defense and congressional defense authorization and appropriations committees; (3) despite DOD regulations that require a cost-benefit analysis to determine if the warranty is cost-effective, some cost-benefit analyses are inadequate; (4) the military services are not conducting post-award assessments to determine whether warranty costs are commensurate with the benefits received and to identify advantageous and disadvantageous warranty provisions for future contracts; (5) the government has traditionally self-insured because its large resources make protection against catastrophic loss unnecessary, and it is often the sole buyer for a product and cannot share the insurance costs with other buyers; (6) 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; (7) DOD officials said that warranties do not motivate contractors to improve the quality of their products; and (8) warranties only extend the period that DOD can determine that a product does not conform to contract specifications and requirements and require the contractor to make repairs.