**GAO-11-61R**                      Published: Oct 28, 2010. Publicly Released: Oct 28, 2010.                  

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## Highlights

According to some Department of Defense (DOD) and industry experts, consolidation of the defense industry along with a shift in prime-contractor business models has resulted in prime contractors subcontracting more work on the production of weapon systems and concentrating instead on systems integration. Based on some estimates, 60 to 70 percent of work on defense contracts is now done by subcontractors, with certain industries aiming to outsource up to 80 percent of the work. At the same time, there is evidence that subcontractor performance may contribute to cost and schedule delays on weapon system programs. Congress has raised questions about the extent to which primes are awarding subcontracts competitively and about the government's insight into the process prime contractors use for determining what work to make in-house and what work should be bought from subcontractors (make-or-buy decisions). In the 2009 Weapon Systems Acquisition Reform Act (WSARA), Congress directed DOD, as part of efforts to improve competition throughout the life cycle of major defense programs, to ensure that contractors' make-or-buy decisions are fair and objective. Specifically, the Secretary of Defense was directed to require prime contractors to give full and fair consideration to qualified sources other than the prime contractor for the development or construction of major subsystems and components of major weapon systems. These actions were to be taken by November 22, 2009. Congress also directed DOD to revise its acquisition regulation regarding organizational conflicts of interest (OCI). In response to both of these requirements, DOD has drafted revisions to its acquisition regulation that are pending final approval. The 2010 National Defense Authorization Act required us to study the structure and management of major subcontracts under contracts for the acquisition of selected major weapon systems. In response to this mandate and given the reliance on subcontracts and the possible implications for government oversight, we (1) examined how government and prime contractors defined "major" subcontract, and the number and value of those considered major, (2) analyzed prime contractors' approach to selecting and managing major subcontractors, (3) examined the extent to which the government has visibility into major subcontracts and, finally, (4) examined how potential OCIs are addressed and the government's role in selecting the approach chosen.

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## Topics

Government Operations

CompetitionConflict of interestsContract administrationContract oversightContract performanceDecision makingDefense industryDefense procurementDepartment of Defense contractorsPrime contractorsPrime contractsPrioritizingSchedule slippagesSubcontractorsSubcontractsSystems integrationWeapons systemsCost growthTransparency