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

What GAO Found

The Air Force obligated $14 billion from fiscal years 2010 through 2014 on undefinitized contract actions (UCA)—a contracting vehicle that authorizes contractors to begin work before reaching final agreement on contract terms. These UCA obligations do not include actions that were foreign funded and administered by the U.S. government at no cost. During this 5-year period, five major space and aircraft programs drove the Air Force’s obligation trends, which peaked in fiscal year 2012 at $4.5 billion before declining to $1.1 billion for fiscal year 2014. For the undefinitized actions that GAO reviewed, the most common reason cited for awarding UCAs by Air Force contracting officials was to meet urgent needs. The Air Force met requirements to obtain approval prior to awarding a UCA and limit obligations for the awards that GAO reviewed. However, GAO found that the Air Force did not meet definitization time frames for the actions GAO reviewed and may be underreporting UCAs in the Department of Defense’s (DOD) semiannual report to Congress. Air Force contracting officials said it has been standard practice to exclude undefinitized long-lead contracts from UCA semiannual reporting because these types of procurements are not subject to UCA definitization and obligation limitation requirements. DOD guidance, however, calls for the inclusion of all UCAs valued over $5 million in the semiannual report submissions, including procurements exempt from UCA requirements. During the course of GAO’s review, the Deputy Assistant Secretary of the Air Force for Contracting issued a memorandum in April 2015 to all Air Force contracting commands reiterating that all UCAs, including those for long lead items, are to be reported in DOD’s semiannual report to Congress.

To meet urgent needs, federal agencies, including 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. 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 or before more than 50 percent of the estimated contract price is obligated, whichever occurs first. GAO has previously reported that incomplete data may hinder the department’s full understanding of the extent to which UCAs are used. In 2008, DOD issued new policies on UCA oversight and management which, among other things, required 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.

The joint explanatory statement accompanying the Consolidated and Further Continuing Appropriations Act for Fiscal Year 2015 included a provision for GAO to review the Air Force’s use of UCAs. This report addresses (1) patterns in the Air Force’s use of UCAs and (2) reasons the Air Force awarded undefinitized actions and the extent to which the Air Force adhered to UCA policies and procedures. GAO analyzed federal procurement data from fiscal years 2010 through 2014, interviewed DOD and Air Force contracting officials, and assessed Air Force implementation of applicable defense regulations using a non-generalizable sample of 10 Air Force UCAs.