Defense Working Capital Fund Pricing in the Defense Finance Accounting Service: A Useful, but Limited, Tool

During the early fall of 2013, the Office of the Secretary of Defense for Cost Assessment and Program Evaluation (OSD-CAPE) asked the RAND Corporation to assess the advantages and disadvantages of continuing to fund the Defense Finance and Accounting Service (DFAS) through a Defense Working Capital Fund (DWCF). Abetted by reduced prices made possible by using automated approaches, DFAS has successfully induced its clients to evolve toward less costly approaches for paying Department of Defense (DoD) contractors and personnel. DWCF prices provide more incentives to DFAS customers than to DFAS itself. However, DFAS s constant dollar costs have fallen over time, even as overall DoD spending has increased. On balance, we do not recommend that DFAS return to being funded solely by direct appropriation. However, it may be beneficial to reform DFAS (and, more generally, DWCF) pricing to allow nonlinear approaches, such as quantity discounts and direct funding of fixed costs. This research report should be of interest to DoD personnel involved with DWCF and transfer pricing issues. It was sponsored by OSD-CAPE and conducted within the Acquisition and Technology Policy Center of the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the United Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.