Book Description

The administrative phase of contracts terminated for convenience begins when the contracting officer issues a termination notice to the contractor and ends with final settlement and payment of the contractor's termination claim. Federal Acquisition Regulations (FAR) provide general guidelines to administer contract terminations. Within DoD, the Defense Logistics Agency has overall responsibility for administration and settlement of nearly all contracts terminated for convenience. We performed the audit to evaluate the effectiveness of the DoD policies and procedures for administering contracts terminated for convenience. We also evaluated the effectiveness of applicable internal controls and reviewed implementation of the DLA Internal Management Control Program, as it pertained to the administration of contracts terminated for convenience. The audit showed that DLA took an average of nearly 2 years to settle contracts terminated for convenience. This greatly reduced the ability of DoD to redistribute an estimated $412 million of materials and property (Finding A). In addition, DLA did not effectively manage the contract terminations program. As a result, management lacked an effective basis to determine the resources needed to administer 6,200 contract terminations, valued at about $6.4 billion (Finding B). Prior to our audit, DLA had recognized the need to improve and strengthen controls over the termination program. Recent action by DLA to implement the Termination Automated Management System was helpful. Nevertheless, we concluded that DLA management did not have adequate visibility and oversight of the contract termination program in the midst of a major reorganization and lacked an effective basis to determine the resources needed to administer contract terminations within DoD. Internal controls were not adequate to effectively and efficiently administer contract terminations and to.