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Buying defense weapon systems under multi-year contracts rather than a series of single-year contracts can save costs because contractors can buy materials in more economic quantities, schedule workers and facilities more efficiently, and reduce the burden of preparing multiple proposals. The U.S. Air Force is in the process of awarding multi-year contracts for 60 F-22A aircraft over three years. Congress wants to assure itself that the proposed contract will yield the promised savings and asked RAND for an independent review of the estimated savings. Researchers found that a multi-year procurement of three lots of F-22A fighters would save an estimated $411 million — about 4.5 percent of the total contract value. They were able to trace 70 percent of the $411 million to substantiated savings estimates identified by the contractors. Examining the issue of multi-year savings using several approaches produces a consistent range of results, indicating that the savings attributed to the multi-year contract by the contractors appear to be reasonable.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    The Basics of Multiyear Contracts

  • Chapter Three

    Estimating Single-Year Procurement Price

  • Chapter Four

    Categorization and Substantiation of F-22A Multiyear Contractor-Proposed Savings

  • Chapter Five

    A Look at the History of Aircraft Multiyear Contracts

  • Chapter Six

    Results and Findings

  • Appendix A

    After-the-Fact Analysis of F/A-18E/F Multiyear Savings

  • Appendix B

    Reasons for Multiyear Savings from Previous Reports

  • Appendix C

    Tail-Up Analysis

  • Appendix D

    Institute for Defense Analyses Report Summary

  • Appendix E

    Military Fixed-Wing MYP Since 1995

The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted in the RAND National Defense Research Institute, a federally funded research and development center sponsored by the OSD, the Joint Staff, the Unified Combatant Commands, the Department of the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

This report is part of the RAND Corporation monograph series. RAND monographs present major research findings that address the challenges facing the public and private sectors. All RAND monographs undergo rigorous peer review to ensure high standards for research quality and objectivity.

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