Defense Contracting: Observations on Air Force Use of Undefinitized Contract Actions

Abstract : To meet urgent needs, the Department of Defense (DOD) can authorize contractors to begin work and incur costs before reaching final agreement on contract terms, specifications, or price, using an undefinitized contract action (UCA).1 This type of contractual action is considered risky for the government because contractors have little incentive to control costs as the government normally reimburses contractors for all allowable costs incurred during the undefinitized period. Further, the government may incur unnecessary costs if requirements change before the contract is definitized. To help minimize these risks, defense acquisition regulations generally require UCAs to be definitized within 180 days of issuance of the contract action or before more than 50 percent of the estimated contract price is obligated, whichever occurs first. We have previously reported on DOD s efforts to provide oversight of UCAs and meet its required definitization time frames. In June 2007, we found that DOD did not know the extent to which it was using UCAs and identified the need for the department to improve oversight and its ability to meet required definitization time frames. In response, the department issued a new policy in 2008 on UCA oversight and management which, among other things, required DOD components to report semiannually on UCAs with an estimated value exceeding $5 million to the Office of the Under Secretary of Defense for Acquisition, Technology & Logistics, Defense Procurement and Acquisition Policy (DPAP).4 In turn, DPAP uses these data to provide a mandated report to Congress on DOD s use of UCAs. In January 2010, we found that these efforts enhanced DOD s oversight of UCAs across the department; however, we also found that incomplete data continued to hinder its full understanding of the extent to which UCAs are used.5