The Committee meets today to consider the performance of DOD’s major acquisition programs at a time when cost growth on these programs has reached crisis proportions.
We don’t have to look very far to find examples. Over the last five years, unit costs on the Air Force’s largest acquisition program, the Joint Strike Fighter, have grown by almost 40 percent, costing us an extra $37 billion. Over the last three years, unit costs on the Army’s largest program, the Future Combat Systems, have grown by more then 45 percent, costing us an extra $40 billion. And last year, the Navy had to cancel the planned construction of two Littoral Combat Ships after the program cost doubled in just two years.
Since the beginning of 2006, nearly half of DOD’s 95 largest acquisition programs have exceeded the so-called “Nunn-McCurdy” cost growth standards established by Congress to identify seriously troubled programs. Overall, these 95 major defense acquisition programs (known as “MDAPs”) have exceeded their research and development budgets by an average of 40 percent, seen their acquisition costs grow by an average of 26 percent, and experienced an average schedule delay of almost two years.
GAO tells us that the cost overruns on these MDAPs now total $295 billion over the original program estimates, even though we have cut unit quantities and reduced performance expectations on many programs in an effort to hold costs down.
Just to put the size of these cost overruns in perspective: for $295 billion, we could buy, at current prices, 2 new aircraft carriers for $10 billion each, and 8 Virginia class submarines for $2.5 billion each, and 500 V-22 Ospreys for $120 million each, and 500 Joint Strike Fighters for $100 million each, and 10,000 MRAPs for $1.4 million each – all of that and still have enough money left over to pay for the entire $130 billion Future Combat System program.
These cost overruns happen because of fundamental flaws that are built into our acquisition system. We even know what these flaws are: DOD acquisition programs fail because the Department continues to rely on unreasonable cost and schedule estimates, establish unrealistic performance expectations, insist on the use of immature technologies, and direct costly changes to program requirements, production quantities and funding levels in the middle of ongoing programs.
As Secretary Gates recently said, we have been “adding layer upon layer of cost and complexity onto fewer and fewer platforms that take longer and longer to build” and that “must come to an end.”
Let me give some examples of how these problems have impacted specific weapon systems:
-- With regard to unrealistic cost and schedule estimates: the Navy initially established a goal of $220 million and a 2-year construction cycle for the two lead ships on the Littoral Combat Ship (LCS) program – goals that were completely inconsistent with the Navy’s historic experience in building new ships and with the complexity of the design required to make the program successful. As a result, program costs doubled and the Navy started to run out of money long before the ships were complete, forcing it to cancel follow-on ships.
-- With regard to unrealistic performance expectations: the National Polar-orbiting Operational Environmental Satellite System (NPOESS) was designed to include 14 different environmental sensors on 6 different satellites, plus a ground system. The system turned out to be so complex and unmanageable that that costs doubled, forcing the Department to eliminate one of the planned satellites and 5 of the planned sensors, and make several of the other sensors less complex. The Department is now trying to figure out how to restore some of the capability that will be lost as a result of the elimination of planned sensors.
-- With regard to immature technologies: the Army’s Warfare Information Network-Tactical (WIN-T) program entered the system development and demonstration phase with only 3 of its 12 critical technologies at the appropriate level of maturity. As the Army struggled to develop these technologies or to substitute alternative technologies that were more ready for production, program costs grew by 88 percent and the program was delayed by more than four and a half years.
-- With regard to changing program requirements: the Air Force has repeatedly restructured its Global Hawk program, to add new and sometimes unproven technologies. While the new technologies have added to the capability of the Global Hawk, the changes have led to space, weight and power constraints that have more than doubled production costs and have significantly disrupted the program.
Over the last few years, this Committee has taken a number of steps to try to address these problems. For example, we have required senior acquisition officials to certify that cost estimates are realistic and technologies are mature before new programs are started, required that program managers be held accountable for meeting measurable performance objectives to which they have agreed in writing, and tightened the so-called “Nunn-McCurdy” thresholds to prevent the Department from hiding under-performing programs.
The Under Secretary of Defense for Acquisition, Technology, and Logistics, who will be testifying before us today, has carried out our new certification requirements and has used the Nunn-McCurdy process to require the serious reexamination of troubled programs. He has also required the military departments to establish configuration steering boards to prevent unnecessary and costly changes to program requirements – a constructive step that we propose to enact into law in this year’s National Defense Authorization Act.
However, these efforts have fallen far, far short. No matter how well-intentioned Secretary Young and other senior acquisition officials may be, for example, they remain dependent upon the information that is provided to them by contractors and program offices. These contractors and program offices have every reason to produce optimistic cost estimates and unrealistic performance expectations, because programs that promise revolutionary change and project lower costs are more likely to be approved and funded by senior Administration officials and by Congress. In other words, we get the information we need to run our programs from people who have a vested interest in overpromising.
In a draft report that will be issued later this month, GAO concludes that “DOD’s inability to allocate funding effectively to programs is largely driven by the acceptance of unrealistic cost estimates, and a failure to balance needs based on available resources. Development costs for major acquisition programs are consistently underestimated at program initiation – 30 to 40 percent – in large part because the estimates are based on limited knowledge and optimistic assumptions about system requirements and critical technologies.”
The consequences of using such optimistic estimates were correctly identified by DOD’s Acquisition Performance Assessment (DAPA) panel two years ago. The DAPA panel found that “Using optimistic budget estimates . . . forces excessive annual reprogramming and budget exercises within the Department, which in turn causes program ‘restructuring’ that drives long-term cost, causes schedule growth, and opens the door to requirements creep.”
It will take a fundamental change in the structure and culture of the acquisition system to address this problem. For this reason, I believe that we need a Director of Independent Cost Assessment in the Department of Defense, with authorities and responsibilities comparable to those of the Director of Operational Test and Evaluation that we established 20 years ago. This new, independent office would review cost estimates on all major defense acquisition programs and develop its own independent cost estimates, to ensure that the information on which so many of our program and budget decisions are based is fair, unbiased, and reliable. I plan to offer an amendment to this year’s defense bill, when it comes to the Senate floor, to establish this new office.
Today the Committee will hear from John Young, the Under Secretary of Defense for Acquisition, Technology, and Logistics, who is the top acquisition official for the Department of Defense, and from Katherine Schinasi, who is GAO’s top expert on the acquisition system.
I look forward to the testimony of our witnesses on these important issues.