Defense Contracting: DOD Has Enhanced Insight into Undefinitized Contract Action Use, but Management at Local Commands Needs Improvement

Abstract : To meet urgent needs, DoD can issue undefinitized contract actions (UCA), which authorize contractors to begin work before reaching a final agreement on contract terms. Such actions are considered to be a risky contract vehicle for the government because contractors lack incentives to control costs during this period. Defense regulations provide that the government determination of contractors' allowable profit or fee should reflect any reduced cost risk. Pursuant to the 2008 National Defense Authorization Act, GAO assessed whether DoD actions taken as required by the act have accomplished the following: (1) improved departmental insight and oversight of UCA use; and (2) resulted in local commands meeting DoD's standards for documenting the basis for negotiating the contractor profit or fee, definitization timelines, and obligation amounts. GAO reviewed relevant DoD regulations and policies and contract files for 83 randomly-selected UCAs totaling $6.1 billion at eight local commands. The findings from this contract file review cannot be generalized across DoD. GAO recommends that the Secretary of Defense revise defense regulations to provide specific guidance for how to develop, consider, and document assessments of cost risk for profit or fee for all undefinitized contract actions. In written comments, DoD agreed with the recommendations.