Grumman Corporation's Capability of Providing the Navy and the Contractor With Information on the Costs of the F-14 Aircraft Program

Published by the Government Accountability Office on 1971-06-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

Rear Mr. Chairman:
      We were requested by your office to determine whether the
GrummanAerospace Corporation managementinformation system is
capable of providing the Navy and the contractor with information
necessary to maintain visibility      over the costs of the F-14 air-
craft, program. In addition, we were asked to determine whether
data from them        could be used. to project      the---.contractor's
                                            + __._-..---                          Li
estimated costs of production
                       _--..-,I . for  options not   yet exercisedo
                                                                           j-&3    OCs-"'
      Cur work was performed at the GrummanAerospace Corporation,
Bethpage, New York. We interviewed officials         responsible for
maintaining the managementinformation system and reviewed the
method by which the contractor maintains its budget under the
system, Documentson labor hours and projections of labor hours
and material costs for aircraft on order and those under option
were also examined.
     Under the terms of its contract with the Navy for the F-14 air-
craf%,Grumman Aerospace Corporation is required to maintain its
managementinformation system in accordance with the criteria set
forth in Department of Defense Instruction '7OCC.2titled Performance
Measurementfor Selected Acqtisitions.     Performance measurement is a
term given to a set of criteria relating to the cost and to the
schedule to which a contra&ores managementinformation system must
      After Grummanwas awarded the contract, the Navy performed a
review of the contractorus managementinformation system and upon cor-
rection of several discrepancies approved the system in January 1971.
     According to the terms of the contract, Grummanis required to
submit monthly reports to the Navy> the format and contents of which
were developed as a result of negotiations between the contractor and
the Navy.

       The major month3.y report on costs submitted to the Navy by
Grummanfor the 38 F-14 aircraft on order is the Cost Account Summary
Status   Report. This report shows the actual costs incurred, the

    *budgeted costs of work completed, a& the bu@eted costs of work
      scheduled to tite,   In additim, few the options exercised the
      report shows the estimated costs the contractor expects to incur at
      completion and the e&-ted      cost overrun or underrun. This report
      to the Navy covers aircraft. on order only, The Navy does not obtain
      information from Grunnnanas to the effect costs increases expected
      for aircraft on order may have on the cysts of aircraft for wkkh
      options have not yet been exercisedo
          For example, GXXBXTWI was experiencing Jtncreasing labor rates
     and advised the Navy in Jantrary 1970 that it anticipated cos%s of
     $22 million in excess of those it accepted during nego-tiations with
     the Navy for the first 6 aircraft.    In May lfl0 Grummanreported to
     the Navy that procurement costs of airframe components were expected
     to increase by $21.5 million for the first 6 aircraft.     However, the
     Navy did not obtain from G~WEUUU   the effect that the increased labor
     rates and procurement costs could be expected to have on the remainder
     of the F-14 aircraft the Navy plays to purchase under the contract

           Grummanusmanagementinformation system provides the contractor
     with data by which it can maintain visibility over the cost of the
     program. In this regard, the contractor prepares for its own use an
     estimate of the total costs at completion for aircraft under option
     and those on order. This type of estimate has been prepared by Grumman
     about every 3 or 4 months since November1969,
           The Navy should obtain from           as part of its monthly report,
     the contractorBs estimated costs           ce aircraft under option as
     well as those on order, Weunderstand that the Ma is currently con-
     sidering obtaining from G        this type of info     tion for management
     purposes. Information of this nature would furnish arisibility     as to
     the costs the contractor estpects to incur in relation to the prices
     that have been established for the program, This would give the Navy,
     the Department of Defense, and the C     ttees of the Congress current
     information as to  cost growths being experienced   and anticipated by the
     contractor in the performance of the eontracto

                                               Comptroller General
                                               of the United States
     The Honorable John C, Skennis, Chairman
     Committee of Armed Services
     United States Senate