MDA's reliance on undefinitized contract actions skyrockets, GAO finds

By Jason Sherman / June 18, 2018

The Missile Defense Agency's reliance on undefinitized contracts -- which the military uses to authorize companies to begin work on weapons projects before agreeing to final terms -- has increased dramatically over the last five years, according to a congressional audit.

The Government Accountability Office, in its annual audit of the Ballistic Missile Defense System, honed in on MDA's use of undefinitized contracts, which it says potentially expose the Defense Department to unnecessary costs. MDA has seen its budget soar from $8.2 billion appropriated in fiscal year 2017 to $11.5 billion in FY-18.

"Our analysis of MDA contracting from fiscal year 2013 to fiscal year 2017 shows that the combined not-to-exceed price of all undefinitized contract actions entered in a given year, and the average time it takes to definitize undefinitized contract actions have increased," GAO stated in its report.

While these contract vehicles allow the government to begin a project quickly, the contractor does not have a strong incentive to control costs until the terms are finalized, according to GAO.

The combined not-to-exceed price of all such contracts MDA awarded in 2013 was $2.5 million, a sum that exploded to $1.4 billion by 2017, GAO found. That marks an increase of more than 5,000 percent over five years.

The average time to definitize these contract actions has also increased, GAO found. In 2013, MDA took 78 days to finalize terms for contracts awarded as undefinitized actions. For the single UCA awarded in 2016, it took MDA 600 days to finalize terms. according to GAO. And in 2017, the two UCAs awarded both exceeded 180 days without definitization.

According to the audit, MDA's acquisition manual requires that UCAs be utilized only "on an extremely limited basis" and only when the time required to negotiate contract terms before beginning work would "adversely impact mission accomplishment."

GAO noted UCAs are "considered risky in part because the government may incur unnecessary costs if requirements change before the contract is definitized."

Last year, MDA used a UCA to fund work on a high-priority project to modernize the Ground-based Midcourse Defense segment of the BMDS, awarding Boeing a not-to-exceed $1 billion undefinitized contract for continued design, development and initial production of the Redesigned Kill Vehicle.

As of February 2018, MDA reported obligating $324 million, or 30 percent, of the not-to-exceed price, according to GAO. "This is in excess of the $244 million planned for the undefinitized period at the time of the award," the report found.

GAO recommended MDA routinely provide lawmakers information on the agency's use of UCAs in the annual BMDS acquisition reports to Congress.

The Defense Department agreed with this recommendation and, according to a May 8 response to a draft version of the GAO report, provided recommended information to lawmakers in March.

Sen. Richard Durbin, Senate Appropriations defense subcommittee vice chairman, earlier this year raised concerns about MDA's ability to effectively obligate the funding increase the agency is currently executing.

"My experience, many years on appropriations committees in the House and Senate, is that in -- in our haste to spend massive increases, we do foolish things," Durbin said in an April 11 hearing.

MDA Lt. Gen. Samuel Greaves assured lawmakers he is closely managing how the agency obligates the additional funds Congress directed for missile defense work in FY-18 in response to North Korean missile developments last year.

"I will tell you that it's been my track record to treat that funding as though it's my own and to ensure that the folks that work for me are spending every dollar the way it should be spent," Greaves told the Senate panel during the April hearing.

Speaking about the additional funding Congress provided MDA late last year, Greaves said, "I am tracking the obligation and then ultimately the expenditure of that funding by industry weekly, and reporting it up the chain within the Department of Defense."