oversight

Strategic Weapons: Long-Term Costs Are Not Reported to the Congress

Published by the Government Accountability Office on 1990-08-10.

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

----

GAO

------.-
At1$pst    l!NO
                  STRATEGIC
                  WEAPONS
                  Long-Term Costs Are
                  Not Reported to the
                  Congress
                                          *.
                                          ri:




                                 141993
    National Security and
    International Affairs Division

    B-239666

    August 10,199O

    The Honorable Sam Nunn
    Chairman, Committee on Armed Services
    United States Senate

    The Honorable Daniel K. Inouye
    Chairman, Subcommittee on Defense
    Committee on Appropriations
    United States Senate

    The Honorable Les Aspin
    Chairman, Committee on Armed Services
    House of Representatives

    The Honorable John P. Murtha
    Chairman, Subcommittee on Defense
    Committee on Appropriations
    House of Representatives

    This report discusses the long-term costs of 12 strategic weapon systems and the extent to
    which the Congress is routinely provided with estimates of such costs. It illustrates the
    importance of complete estimates of the cost of operating and supporting major defense
    systems.

    We are sending copies of this report to the Chairman, Senate Committee on Governmental
    Affairs; the Chairman, Legislation and National Security Subcommittee, House Committee on
    Government Operations; the Secretaries of Defense, the Air Force, and the Navy; and the
    Director, Office of Management and Budget.

    This report was prepared under the direction of Nancy R. Kingsbury, Director, Air Force
    Issues, who may be reached at (202) 275-4268 if you or your staff have any questions
    concerning this report. Other major contributors to this report are listed in appendix II.




    Frank C. Conahan
    Assistant Comptroller General




.
Executive Summary


                   During the 198Os, concerns over the threat posed by the Soviet Union
Purpose            led the United States to acquire modernized strategic nuclear weapon
                   systems as its defense budget increased. Recent events indicate that per-
                   ceptions of a lessened Soviet threat will lead to greater efforts in the
                   1990s to control the federal deficit by reducing defense spending.

                   The Congress is considering the first defense budget of the 1990s in light
                   of these events and is reviewing the affordability of major weapon sys-
                   tems. This report uses 12 strategic weapon systems to illustrate the
                   importance and difficulty of obtaining the long-term cost estimates that
                   the Congress needs to assess weapon system affordability.


                   In October 1981 the President announced a program to modernize U.S.
Background         strategic airborne systems, land-based missiles, and submarine-launched
                   missiles. The modernization program now encompasses 12 Air Force and
                   Navy systems, including B-1B and B-2 bombers, Air Launched and
                   Advanced Cruise Missiles, Trident II submarines and missiles, and
                   Peacekeeper and Small intercontinental ballistic missiles.

                   A system’s total cost to the government consists of the cost to acquire,
                   operate, and support the system over its entire life. Acquisition costs
                   include development, production, and directly related military construc-
                   tion. Operation and support costs include personnel, fuel, spare parts
                   replenishment, direct depot maintenance, and contractor support.

                   The Department of Defense (DUD) submits major weapon system acquisi-
                   tion cost estimates to the Congress in annually updated Selected Acqui-
                   sition Reports. Reports first prepared after January 1985 must include
                   operation and support cost estimates.


                   The cost of acquiring 11 strategic weapon systems and operating 10 of
Results in Brief   them between fiscal years 1982 and 2020 could exceed $476 billion in
                   then-year dollars. (Unless noted otherwise, all years cited are fiscal
                   years and all figures are in then-year dollars, which reflect the effects of
                   inflation over time.) Small Intercontinental Ballistic Missile total costs
                   and Air Launched Cruise Missile operation and support costs were
                   unavailable. GAO'S cost projections are based on DOD'S plans as of 1989.
                   Changes to these plans-such as DOD'S April 1990 decision to reduce the
                   number of B-2s from 133 to 75-will affect costs.




                   Page 2                                       GAO/NSI.AD-90-226Strategic Weapons
                  Executive Summary




                  Acquiring, operating, and supporting the seven airborne systems as of
                  DOD'S 1989 plans could cost about $315 billion from 1982 to 2020. Tri-
                  dent II submarines and missiles could cost $122 billion to acquire and
                  operate. The Peacekeeper missile, if made mobile, could cost about $39
                  billion. About 27 percent, or about $129 billion, of the strategic systems’
                  total cost was appropriated for 1982 through 1990.

                  About $275 billion will be needed to operate and support 10 of the sys-
                  tems through 2020. GAO found that DoD does not routinely provide the
                  Congress with complete operation and support cost estimates for most
                  of these systems. GAO supplemented the few routinely provided esti-
                  mates by requesting data from the services. Congressional visibility over
                  the operation and support costs will decrease further once the systems
                  are deployed. Until DOD fulfills congressional directives aimed at estab-
                  lishing a uniform system to routinely provide the Congress with more
                  complete operation and support cost estimates, congressional deci-
                  sionmakers will have to request estimates from the services as needed.

                  GAO believes that the projections in its report understate the cost of the
                  strategic systems as of 1989. Some DOD acquisition cost estimates have
                  been understated in the past, and the operations and support cost pro-
                  jections assume a very low future inflation rate.


                  GAO combined acquisition cost data, primarily   from Selected Acquisition
GAO’s Analysis    Reports, with operation and support cost projections that were based on
                  data from Selected Acquisition Reports or from Air Force and Navy
                  sources. GAO did not verify these data due to the amount of time that
                  would have been required.


Projected Costs   The projected annual funding levels required to acquire, operate, and
                  support the strategic systems will peak in the early 1990s at about $18
                  billion, due to acquisition cost levels. (These costs are depicted in fig. 2.1
                  on pp. 14 and 15.) As the acquisition programs are completed and
                  annual acquisition costs fall, operation and support costs will increase.
                  By 2003 annual operation and support costs will be about $9 billion. GAO
                  used DOD'S 1.8 percent annual inflation rate to project that by 2020
                  annual operation and support costs will be about $11 billion.




                  Page 3                                        GAO/NSIAD-90-226Strategic Weapons
                            ExecutiveSummary




Limited Congressional       Although Selected Acquisition Reports first prepared after January
Visibility Over Operation   1986 must include operation and support cost estimates, reports for
                            seven of the systems were first prepared before that date and did not
and Support Costs           include such estimates. The reports for the other systems typically con-
                            tained limited operation and support estimates that did not include all
                            the data needed to fully assess total cost. For example, the reports often
                            did not identify the operation and support costs of the total number of
                            units to be deployed, the system’s anticipated life, or the then-year
                            dollar value of the cost.

                            Once a system is deployed, its operation and support costs become less
                            visible to the Congress. DOD stops submitting a Selected Acquisition
                            Report after a system is fielded. Moreover, DOD budget and Five Year
                            Defense Plan documents provided to the Congress do not identify such
                            costs by system.

                            The Congress’s concern over long-term operation and support costs con-
                            tinues. The Senate Committee on Appropriation’s report on the fiscal
                            year 1988 DUD appropriations bill requested, in part, that (1) each ser-
                            vice be able to report accurate and verifiable operation and support
                            costs for major systems within 4 years and (2) operation and support
                            data for at least 3 major systems per service be included in budget sub-
                            missions beginning with the 1990 budget. DOD tried to comply with this
                            request but did not do so in the 1990 and 1991 budgets.


Understated cost            GAO believes that the projections in its report understate the cost of
Projections                 these systems because acquisition cost estimates have been understated
                            in the past and operational and support projections assume very low
                            future inflation rates. Earlier this year GAO reported that DOD'S B-Z
                            acquisition cost estimate had grown over 20 percent in less than 4 years.
                            In 1989 GAO reported that the B-1B program had incurred $31 billion in
                            costs, including about $3.7 billion in costs excluded from the Selected
                            Acquisition Report.

                            GAO'S operation and support cost projections are based largely on a 1.8
                            percent inflation rate that DOD was using for future planning when GAO
                            conducted its work. By historic standards this rate is low, and some ana-
                            lysts predict future rates of 4.3 percent or more. After GAO completed its
                            work, DOD informed GAO that DOD had begun using inflation rates of 3.1
                            to 3.4 percent for planning beyond 1994. GAO has not revised its projec-
                            tions but notes that the costs shown represent the lower end of the cost
                            range.


                            Page4                                       GAO/NSIAD-90-226StrategicWeapona
                  Executive Summary




                  GAO is not making recommendations in this report because the Congress
Recommendations   has already directed DOD to provide better cost estimates for operating
                  and supporting individual defense systems.


                  In its comments on a draft of this report, DOD basically agreed with GAO'S
Agency Comments   findings, conclusions, and overall numbers in the cost projections. DOD'S
                  comments are included in appendix I and evaluated in chapter 2.

                  DOD stated that a more useful analysis would have shown each pro-
                  gram’s complete life-cycle cost in constant-year dollars. GAO believes
                  that then-year dollars are appropriate units of measurement to illustrate
                  both the rise and fall of costs on a year-by-year basis and the long-term
                  impact of operation and support costs. Then-year dollar figures enu-
                  merate the annual cost of each program in the type of dollars that would
                  be requested from the Congress for that year.




                  Page 6                                       GAO/NSIAD-90-226Strategic Weapons
Contents


Executive Summary                                                                                2

Chapter 1                                                                                       8
Introduction             System Costs
                         Objectives, Scope, and Methodology
                                                                                                8
                                                                                                9

Chapter 2                                                                                      12
Costs of the Strategic   Program  Costs
                         Limited Congressional Visibility Over O&S Costs
                                                                                               12
                                                                                               22
Modernization            Understated Cost Projections                                          23
Program’s Weapon         Conclusions                                                           24
                         Agency Comments and Our Evaluation                                    2s
Systems
Chapter 3                                                                                      26
Airborne Systems         B-l B Bomber
                         B-2 Bomber
                                                                                               26
                                                                                               32
                         Modified B-62 Bomber                                                  36
                         KC-136R Tanker                                                        37
                         SRAM II                                                               42
                         ALCM                                                                  46
                         ACM                                                                   47

Chapter 4                                                                                      62
Intercontinental         Peacekeeper and Rail Garrison
                         Small ICBM
                                                                                               62
                                                                                               66
Ballistic Missiles
Chapter 5                                                                                      68
Trident II Missile and   Background
                         Program Costs
                                                                                               69
                                                                                               61
Submarine
Appendixes               Appendix I: Comments From the Department of Defense                   66
                         Appendix II: Major Contributors to This Report                        74

Tables                   Table 3.1: Estimated O&S Costs of a B-1B Unit                         28
               Y         Table 3.2: Estimated O&S Costs of a KC-136R Unit                      39




                         Page 6                                    GAO/NSIAD-W-226Strategic Weapons
          Contents




Figures   Figure 2.1: Projected Total Costs of Strategic Systems by               14
               Type of Cost
          Figure 2.2: Projected Total Costs of Strategic Systems by               16
               Type of System
          Figure 2.3: Projected Acquisition Costs of Strategic                    18
               Systems
          Figure 2.4: Projected O&S Costs of Strategic Systems                    20
          Figure 3.1: Costs of Six Airborne Systems                               26
          Figure 3.2: The B-1B Bomber                                             27
          Figure 3.3: Estimated Baseline B-1B Costs From 1982                     30
               to 2020
          Figure 3.4: The B-2 Bomber                                              32
          Figure 3.6: Cost of Acqu.iring 133 B-2s and Operating                   34
               4 B-2 Wings Through 2020
          Figure 3.6: The Modified B-62 Bomber                                    36
          Figure 3.7: The KC-136R Tanker                                          38
          Figure 3.8: Estimated KC-136R Costs From 1982 to 2020                   40
          Figure 3.9: The SRAM II                                                 42
          Figure 3.10: Estimated SRAM II Costs From 1984 to 2020                  44
          Figure 3.11: The ALCM                                                   46
          Figure 3.12: ALCM Acquisition Costs From 1982 to 1989                   47
          Figure 3.13: ACMs on a B-62                                             48
          Figure 3.14: Estimated ACM Costs From 1982 to 2020                      60
          Figure 4.1: Peacekeeper ICBMs in Rail Garrison                          62
          Figure 4.2: Peacekeeper Costs From 1983 to 2020                         64
          Figure 4.3: The Small ICBM                                              66
          Figure 6.1: Trident II SLBM and Submarine Costs From                    68
               1982 to 2020
          Figure 6.2: The Trident II D-6 SLBM
          Figure 5.3: The Trident II Submarine                                    2
          Figure 6.4: Estimated Trident II Costs From 1982 to 2020                62

          Abbreviations

          ACM        Advanced Cruise Missile
          ALCM       Air Launched Cruise Missile
          DOD        Department of Defense
          GAO        General Accounting Office
          ICBM       intercontinental ballistic missile
          O&S        operation and support
          SAR        Selected Acquisition Report
          SLBM       submarine-launched ballistic missile
          SRAM       Short Range Attack Missile


          Page7                                       GAO/NSIAD-M-226Strategic Weapons
Chapter 1

Introduction


                    For the past three decades, the United States has had a strategic nuclear
                    Triad of airborne systems, land-based intercontinental ballistic missiles
                    (ICBMS), and submarine-launched ballistic missiles (SLRMS). In October
                    1981 concern over the threat posed by the Soviet Union led the Presi-
                    dent to announce an extensive program to modernize these forces. The
                    strategic modernization program includes the B-1B and B-2 bombers,
                    B-52 bomber modifications, the KC-136R tanker aircraft, the Air
                    Launched Cruise Missile (ALCM), the Advanced Cruise Missile (ACM), the
                    Short Range Attack Missile (SRAM) II, the Peacekeeper ICBM in silos and
                    in Rail Garrison, the Small ICBM, and the Trident II SLBM and submarine.

                    During much of the 198Os, the strategic modernization program coin-
                    cided with large increases in U.S. defense spending. However, current
                    trends suggest that defense spending may be reduced during the 1990s
                    because of perceptions of a diminished Soviet threat.


                    A weapon system’s total cost to the government consists of the cost to
System Costs        acquire, operate, and support the system over its life cycle.


Acquisition Costs   A system’s acquisition costs include the cost of development; produc-
                    tion, training, support equipment, and initial spares; military construc-
                    tion directly identified with the system being acquired; and some
                    operation and maintenance activities, such as installing modifications to
                    complete system acquisition. The Department of Defense (DOD) funds
                    acquisition costs from several budget appropriations, including those for
                    research, development, test, and evaluation; procurement; military con-
                    struction; and operation and maintenance.

                    DOD provides acquisition cost estimates of major systems to the Congress
                    in Selected Acquisition Reports (SARS).~ It prepares SARS for major
                    defense acquisition programs.’ Each SAR summarizes acquisition cost by
                    year and appropriation.”


                    ’ Annual SAKS are for the quarter ending December 3 1. DOD prepares quarterly SARs if program
                    costs increase by 6 percent or more or if milestones change by 6 months or more from those in the
                    previous SAR.

                    DOD defines a major defense acquisition program as a program (1) that has been so designated by
                    the Secretary of Defense or (2) whose cost in 1980 dollars will exceed $200 million in research, devel-
                    opment, test, and evaluation funds, or exceed $1 billion in procurement funds.
                    “We have issued reports on the SARs, including Weapon Acquisition: Improving DOD Weapon System
                    Acquisition Reporting (GAO/NSIAD-90-20, Nov. 14,1989).



                    Page 8                                                       GAO/NSIAD-90-226Strategic Weapons
                            Chapter 1
                            Introduction




Operation and Support       According to DOD, 55 to 65 percent of a system’s constant-year dollar
costs                       life-cycle costs are for its operation. Operation and support (o&s) costs
                            are those associated with a system’s operation and maintenance,
                            including directly and indirectly attributable costs. The Secretary of
                            Defense’s Cost Analysis Improvement Group has identified the fol-
                            lowing o&s cost elements:

                        . pay and allowances for officers, enlisted personnel, and civilians
                            assigned to operational or deployable units;
                        . O&S consumables, including energy and materials needed for operation
                            and maintenance, and ammunition used in training;
                        .   direct depot maintenance costs for maintaining or modifying systems at
                            DOD and contractor facilities or by depot teams;
                        .   sustaining investment, such as replenishment spares, software support,
                            and replacing support equipment;
                        .   interim contractor support and other contract-level support;
                        .   other direct costs, such as updating publications, recurring engineering
                            or technical services, and leasing and maintaining support equipment or
                            materials; and
                        .   indirect O&S costs, such as base operating support, medical personnel,
                            and personnel acquisition and training.

                            DOD funds O&S costs from various appropriations,including procurement,
                            military personnel, and operation and maintenance.

                            The Air Force and the Navy prepare an o&s cost estimate for the
                            Defense Acquisition Board’s consideration before a system enters full-
                            scale development or production, DOD must include O&S estimates in SARS
                            that were first submitted after January 1986 for programs that were in
                            or had completed full-scale development.


                            To assist the Congress in assessing the affordability of major weapon
Objectives, Scope,and       systems in light of recent global events, this report uses the strategic
Methodology                 systems to illustrate the importance of and difficulty in obtaining long-
                            term cost estimates.

                            We selected the 12 weapon systems based on statements by the Presi-
                            dent and the Secretary of Defense from 1982 through 1989. We chose
                            1982 as our initial year because the strategic modernization program
                            was announced at the beginning of fiscal year 1982. We selected 2020 as




                            Page 9                                         GAO/NSIAD-90-226Strategic Weapons
Chapter 1
Introduction




our concluding year after we were told that the oldest strategic sys-
tems-the modified B-52s and KC-135s-could be operational at least
until that year.

We did not prepare independent cost estimates because of the amount of
time that would have been required. Instead, we compiled and projected
DOD, Air Force, and Navy estimates of the cost to acquire, operate, and
support these systems. These estimates are generally based on DOD plans
and schedules as of 1989. Changes to these plans-such as the Secretary
of Defense’s April 1990 decision to reduce the number of B-2s to be
acquired from 133 to 75-will affect these systems’ cost.

Most of our acquisition cost data was obtained from the most recent SARS
available at the time of our work-the  fiscal year 1989 annual and
quarterly SARS.I Complete acquisition costs for the Small ICBM were not
available because DOD had not determined the number or basing mode of
Small ICBMS.

The O&S cost projections for airborne systems are based primarily on
estimates in SARS or requested from the Air Force Cost Center.’ These
estimates were generally limited to the cost of operating a typical air-
craft unit in several specific years or on an average annual cost basis.
We requested the data needed to adjust these estimates into long-term
projections of o&s costs. Air Force officials were unable to provide ALCM
and Small ICBM O&S cost estimates. The Chief of Naval Operations’ Stra-
tegic Submarine Division and the Navy’s Strategic Systems Programs
estimated Trident II o&s costs at our request.

We did not validate the cost estimates that we obtained. We supple-
mented them by reviewing documents and meeting with officials from
the Office of the Secretary of Defense, the Departments of the Air Force
and the Navy, the Air Force Systems Command’s Ballistic Systems Divi-
sion, and the Navy’s Strategic Systems Programs. Unless otherwise
noted, costs are expressed in then-year dollars, which reflect the effect
of inflation over time. We used DOD inflation guidance to inflate esti-
mates as needed. On the basis of DOD guidance at the time of our work,


 ‘These SARs accompanied the proposed 1990 defense budget. We used the fiscal year 1990
Peacekeeper SAR because the fiscal year 1989 SAR did not reflect major program changes announced
in early 1989.

‘The Air Force Cost Center, a part of the Office of the Air Force Deputy Comptroller for Cost and
Economics. estimates future aircraft O&s costs and collects historic O&S data.



Page 10                                                     GAO/NSJAD-90-226Strategic Weapons
chapter 1
Introduction




our estimates assume a 1.8 percent inflation rate beyond 1994. Refer-
ences to years are for fiscal years unless otherwise noted.

For those systems being modified, we included the costs of acquiring
modifications and for operating and supporting the modified systems.
We did not include the cost of acquiring, operating, and supporting the
systems before modification.

We conducted our work from January to December 1989 in accordance
with generally accepted government auditing standards. DOD provided
written comments on a draft of this report. DOD’S comments appear in
appendix I and are evaluated in chapter 2.




Page 11                                    GAO/NSL4D90-226Strategic Weapons
Chapter 2

Costs of the Strategic Modernization Program’s
Weapon Systems

                The cost of acquiring, operating, and supporting the strategic weapon
                systems, as of 1989, could exceed $476 billion from 1982 to 2020,
                assuming low future inflation. Although the strategic systems’ long-term
                O&S costs collectively surpass their acquisition costs, DOD does not rou-
                tinely provide the Congress with complete o&s cost estimates for these
                systems.


                Our review of DOD, Air Force, and Navy cost estimates indicated that the
Program Costs   cost of acquiring 11 strategic systems and operating 10 of them between
                1982 and 2020 could exceed $476 billion. About 27 percent-about      $129
                billion-of this amount was appropriated or planned for 1982 through
                1990. The $476 billion total does not include Small ICBM costs or ALCM
                o&s costs. Small ICBM acquisition would cost about $7.3 billion from 1984
                to 1994, and 300 Small ICBMS could cost about $24 billion in 1988 dollars
                to acquire and operate for 20 years.

                Acquiring, operating, and supporting airborne systems accounted for
                two-thirds of the $476 billion total, although the April 1990 reduction in
                the B-2 program could lower these costs by more than $30 billion. The
                Navy’s 21 Trident II submarines, equipped with D-5 SLRMS, account for
                about 26 percent of the $476 billion total.

                Figure 2.1 (see pp. 14 and 15) shows how the acquisition and O&Scosts
                of the strategic systems would be distributed by year. Figure 2.2 (see
                pp. 16 and 17) depicts how the total annual cost would be allocated
                among the three legs of the Triad. Figure 2.3 (see p. 18) depicts the
                annual distribution of the cost of acquiring these systems, which
                exceeds $200 billion. Figure 2.4 (see pp. 20 and 21) shows O&S costs,
                which could total over $275 billion, or about 58 percent of the total cost.
                Cost increases after 2003 are due primarily to inflation.




                Page 12                                     GAO/NSIAD-90-226Strategic Weapons
Page 13   GAO/NSIAD-90-226Strategic Weapons
                                                        Chapter 2
                                                        Costs of the Strategic Modernization
                                                        Progrmn’s WeaponSystems




Figure 2.1: Projected Total Costs of Strategic Systems by Type of Cost
20 Then-Year Dollars In Billions

                                                                                    n




14




12




      1982    1983     lQ84    1988   1988   1987   1988     lQ89     1990   1991       1992   1993   1994   1995   1998   1997   1998   1999   2000
     Fiscal Years


                                                               Acquisition
                                                    I
                                                    ~          O(Ls




                                                        Page 14                                                     GAO/NSIAD-90-226Strategic Weapons
                                                 Chapter 2
                                                 Costaof the Strategic Modernization
                                                 Program’s WeaponSystems




2001   2002   2003   2004   2005   2008   2007      2008    2009    2010    2011     2012    2013    2014    2018    2018    2017    2018     2019   2020




                                                 Note: B-2 acquisition costs before 1989 (totaling $17.3 billion), effects of B-2 program changes
                                                 announced in April 1990, ALCM O&S costs, and Small ICBM costs are not included.




                                                 Page 15                                                         GAO/NSLADS@226Strategic Weapons
                                                         chapter 2
                                                         Costs ofthe StrategicModernization
                                                         Program’sWeaponSystems




Figure 2.2: Projected Total Costs of Strategic Systems by Type of System
20 Then-Year Dollars in Billions



                                -




    I

        1982      1983   1984   1988   1988   1987   1988      1989    1990     1991     1992   1993   1994   1995   1998   1997   1998   1999   2000
        Fiscal   Years

                                                                 Airborne Systems
                                                     ~           Sea-Based    Systems
                                                                 Land-Based Systems




                                                         Page 16                                                     GAO/NSLAD-90-226
                                                                                                                                    Strategic Weapons
                                                 Chapter 2
                                                 Cm&eof the Strategic Modernization
                                                 Program’s WeaponSystems




2001   2002   2003   2004   2005   2005   2007    2009     2009    2010    2011    2012    2013    2014     2015    2018    2017    2018    2019    2020




                                                 Note: B-2 acquisition costs before 1989 (totaling $17.3 billion), effects of B-2 program changes
                                                 announced in April 1990, ALCM O&S costs, and Small ICBM costs are not included.




                                                 Page 17
                                                                                                                                                                       -
                                                            Chapter 2
                                                            Costs of the Strategic Modernization
                                                            Program’e  WeaponSystem




Figure 2.3: Projected Acquisition Costs of Strategic Systems
20 Then-Year Dollars in Billions



18




16                            r
14                                                                                             r-
12




 8




 8




 - WMWWWWM                                                                            L        A      L                                   L,       L       L       L          L
      1982    1983     1984        1983   1986   1987   1988            1980   IQW     IQ91    1992   1993   1994   1995    1998   1997     1998    1999    2000       2001   2
      Fiscal Years

                                                        u                 Airborne Systems
                                                        ~                 Sea-Based Systems
                                                                          Land-Based Systems

                                                             Note: B-2 acquisition costs before 1989 (totaling $17.3 billion), effects of B-2 program changes
                                                             announced in April 1990, and Small ICBM costs are not included.




                                                             Page 18                                                         GAO/NSIAD96-226 Strategic Weapons
Y




    Page 19   GAO/NSLAD40-226Strategic Weapons
                                                                                                                                                    i
                                                         Chapter 2
                                                         Costs of the Strategic Modernization
                                                         Program’sWeaponSystems




 Figure 2.4: Projected O&S Costs of Strategic Systems
20 Then-Year Dollars in Billions



18




     1992     1983    1004     1995   1986   1997   1988      1999   1990    1991    1992   1993   1994   1995   1996   1997   1999   1999   2000
     Fiscal Years


                                                    II          Airborne Systems
                                                    ~           Sea-Based Systems
                                                                Land-Based Systems




                                                         Page 20                                                  GAO/NSIAD-90-226Strategic Weapons
                                                 Chapter 2
                                                 Costs of the Strategic Modernization
                                                 Program’sWeaponSystems




2001   2002   2003   2004   2005   2006   2007     2008    2009   2010   2011    2012    2013   2014   2015     2016   2017   2018   2019   2020




                                                 Note: ALCM and Small ICBM costs are not included.




                                                 Page 21                                                      GAO/NSIAD-90-226Strategic Weapons
                        Chapter 2
                        Costs of the Strategic Modernization
                        Program’sWeaponSystems




                        We found that DOD does not routinely provide the Congress with com-
Limited Congressional   plete long-term o&s cost estimates for most of the strategic systems.
Visibility Over O&S
costs   -               The Congress has indicated concern over long-term o&s costs by
                        directing DOD to include a complete analysis of life-cycle costs in each
                        new SAR submitted initially after January 1986. However, the SARS for
                        the B-lB, modified B-52, KC-135R, Trident II submarine and missile, and
                        Peacekeeper ICBM were first submitted before January 1985 and do not
                        include life-cycle or o&s cost estimates.’

                        EARSfor more recent systems-such as the B-2, SRAMII, ACM, and Rail
                        Garrison-usually     include limited O&Sestimates that do not contain all
                        of the information needed to fully assess life-cycle o&s costs. o&s esti-
                        mates are usually stated in terms of average annual o&s costs per wing
                        or squadron in base-year dollars.’ The SARSoften do not identify the
                        number of wings or squadrons to be deployed, the anticipated life of the
                        system or the span of years covered by the average annual cost esti-
                        mate, the degree of system maturity assumed in computing the average
                        annual cost estimate, the cost of operating and supporting the system
                        before it is fully operational and mature, and guidance for converting
                        base-year dollar o&s estimates into current- or future-year dollars.

                        An individual system’s O&Scosts become less visible to the Congress
                        after the system is fielded. DOD does not update a SAR once the system
                        has been deployed. M3D budget documents and the Five Year Defense
                        Plan routinely provided to the Congress do not identify the total O&S
                        costs of specific systems.:’

                        The Senate Committee on Appropriations has asked DOD to provide
                        system-specific o&s cost estimates in budget submissions. The Com-
                        mittee’s report on the 1988 DOD appropriations bill requested, in part,
                        that (1) each service be able to report accurate and verifiable o&s costs
                        for major systems within 4 years and (2) o&s data for at least 3 major
                        systems per service be included in the 1990 and subsequent budgets. DOD
                        attempted to comply with this direction but did not do so in the 1990
                        and 1991 budgets.

                         ‘The Small ICBM SAR also does not include O&s data, apparently because its operational configura-
                        tion has yet to be determined.
                        ‘For example, the B-2 SAR’s O&S estimate is in 1981 dollars.

                        “For example, the Five Year Defense Plan does not break out depot-level maintenance costs by
                        system. The Air Force operation and maintenance budget justification stated that several areas of
                        support costs cannot be tracked by weapon system.



                        Page 22                                                        GAO/NSIAD-90-226Strategic Weapons
                             Chapter 2
                             Coats   of the Strategic   Moderdzation
                             Program’s WeaponSystema




                             The Air Force and Navy sources that we used to supplement the few
                             routinely provided o&s cost estimates do not fully compensate for the
                             lack of readily usable and available life-cycle cost estimates. For
                             example, the Air Force Cost Center’s databases and models can estimate
                             the future variable o&s costs of typical units of deployed aircraft, such
                             as the B-62, B-lB, and KC-136R. However, its o&s cost models do not
                             estimate costs for strategic missiles or unfielded aircraft. Other Air
                             Force sources were unable to provide us with complete missile O&S data.
                             Although the Navy updated its February 1987 D-6 O&S estimate and esti-
                             mated Trident II submarine o&s costs, these estimates were prepared at
                             our request and were made available only after numerous discussions
                             with Navy officials over several weeks.


                             We believe that the actual cost of these systems will exceed this report’s
Understated Cost             projections for the following reasons.
Projections

Low Inflation Rate           The o&s cost projections prepared for this report use a projected 1.8 per-
                             cent inflation rate for 1994 and beyond that DOD had been using at the
                             time of our work. Historically, this rate is very low. During the last 26
                             years the Air Force’s operation and maintenance and aircraft procure-
                             ment budget accounts have experienced annual inflation rates that
                             exceeded 1.8 percent. During the 1980s inflation in the operation and
                             maintenance and aircraft account fluctuated from 2.7 to 6.4 percent.

                             The 1.8 percent rate is also low compared with other projections of
                             future inflation rates, such as the Congressional Budget Office’s 4.3
                             inflation rate for 1994. Annual 4.3 percent inflation rates through 2020
                             would increase projected B-1B o&s costs from about $27 billion to over
                             $36 billion and KC-136R o&s costs from about $60 billion to about $80
                             billion. In its comments, DOD noted that it has begun using 3.1 to 3.4 per-
                             cent inflation rates for planning beyond 1994.


Potentially Low              The acquisition cost estimates may understate the actual cost of devel-
Acquisition Cost Estimates   oping and deploying these systems in the quantities that were planned
                             in 1989. Earlier this year we found that the B-2 acquisition cost estimate




                             Page 23                                      GAO/NSIAD-90-226Strategic Weapons
                Chapter 2
                Costs of the Strategic Modernization
                Program’sWeaponSystems




                had grown over 20 percent in less than 4 years. I In 1989 we reported
                that the B-1B program had incurred about $31 billion in costs-about
                $3.7 billion more than shown in the SAR-and that the Air Force planned
                to spend an additional $669 million in enhancements. According to the
                Air Force, the B-1B SAR’S cost schedules did not reflect the use of over
                $670 million from expired appropriations. (Expired appropriations
                include surplus authority, merged surplus authority, and “M” account
                funds.)


Other Factors   Other factors may also tend to understate the cost projections. For
                example, Air Force Cost Center officials told us that their variable o&s
                cost estimates for the B-62, B-lB, and KC-136R do not include software
                support, interim contractor support, or most indirect o&s costs. The SAR
                o&s estimates that we reviewed are stated in terms of average annual
                costs and, to the extent that they assume mature levels of operation,
                may understate o&s costs before system maturity is achieved. SAR acqui-
                sition funding schedules do not include nuclear costs” or post-acquisition
                enhancement costs.


                At the beginning of the past decade, concern over the threat posed by
Conclusions     the Soviet Union resulted in significant increases to the US. defense
                budget and in the strategic modernization program. However, recent
                events in the Soviet Union and Eastern Europe suggest that perceptions
                of a diminished Soviet threat will lead to greater efforts in this decade to
                control the federal deficit through reduced defense spending.

                The Congress is considering the first defense budget of the 1990s in light
                of these events and is assessing the affordability of major defense sys-
                tems. However, congressional concerns regarding the affordability of
                strategic systems can be fully resolved only with complete and accurate
                estimates of each system’s life-cycle o&s costs. Such estimates will not be
                readily available until DOD fulfills congressional directives aimed at
                establishing a uniform system for routinely providing the Congress with



                ‘Strategic Bombers: B-2 Program Status and Current Issues (GAO/NSIAD-90-120,Feb. 22, 1990).
                ‘Strategic Bombers: B-1B Cost and Performance Remain Uncertain (GAO/NSIAD-89-55, Feb. 3,
                1989).

                “According to DOD’s instructions, SARs report nuclear armament and propulsion costs as separate,
                nonadditive items.



                Page 24                                                   GAO/NSIAD-w-226 Strategic Weapons
                      Chapter 2
                      Costs of the Strategic Modernization
                      Program’13 WeaponSyetema




                      more complete O&S cost estimates. Until then, congressional deci-
                      sionmakers will have to request such estimates from the services on a
                      case-by-case basis.


                      In its comments on a draft of this report, DOD basically agreed with the
Agency Comments and   report’s findings and conclusions. It also agreed with the overall num-
Our Evaluation        bers used in our projections of each system’s long-term costs. However,
                      it commented that our analysis would have been more useful if we had
                      shown each program’s complete life-cycle costs in constant-year dollars
                      because (1) use of then-year dollars would tend to exaggerate o&s costs
                      and (2) comparisons of programs using aggregated then-year dollars can
                      be misleading because they obscure the effects of inflation in combina-
                      tion with the high and low points of each program’s funding profile.

                      We believe that then-year dollars are appropriate units of measurement
                      for our analysis because almost all of the cost projections are depicted
                      graphically on a year-by-year basis to illustrate both the rise and fall of
                      costs over time and the long-term impact of o&s costs. Then-year dollar
                      figures are well-suited for this purpose because they enumerate each
                      year’s costs in the type of dollars that would be requested for that year.
                      Our use of DOD'S 1.8 percent inflation rate for 1994 and beyond should
                      mitigate the impact of inflation whenever we aggregate then-year dollar
                      estimates.

                      DOD also commented that in the past it was not required to routinely
                      report complete o&s cost data for specific systems.




                      Page 25                                      GAO/NSIAD!jO-226Strategic Weapons
Chapter 3                                                                                                                       I

Airborne Systems


                                    Data assembled from SARS and Air Force officials indicated that the
                                    B-lB, B-2, modified B-52, KC-135R, SRAMII, ALCM, and ACM may cost
                                    about $315 billion to acquire, operate, and support from 1982 to 2020.’
                                    Of this amount, 61 percent is for o&s costs. Figure 3.1 shows the acquisi-
                                    tion and o&s costs of six airborne systems.


Figure 3.1: Costs of Six Airborne
Systems
                                    Than-Year     Dollars   In Billlona
                                    120

                                    110

                                    100

                                     90

                                     so

                                     70

                                     60
                                                       r
                                     !I0

                                     40

                                     30

                                     20

                                     10

                                      0




                                           Alrborno   Systems

                                             1        J oas
                                                        Acquialtion

                                    Note: We were unable to obtain ALCM O&S costs



                                    The cost of acquiring, supporting, and operating the baseline configura-
B-1B Bomber                         tion B-1B from 1982 through 2020 could exceed $54 billion, according to
                                    Air Force cost estimates.


                                    ‘Changes in the H-2 program announced after we completed our work could reduce this amount by
                                    over $30 billion.



                                    Page 26                                                  GAO/NSIAD-90-226Strategic Weapona
                                           Chapter 3
                                           Airborne Systems




Background                                 The B-1B is a four-engine bomber with variable sweep wings. The Air
                                           Force plans to replace the B-62 as a penetrating bomber with the B-lB,
                                           which will eventually be used as a cruise missile carrier after the B-2
                                           has been deployed. Figure 3.2 shows a B-1B.

Figure 3.2: The B-l B Bomber
                               .-i... , .,.- * . .                                                             .<




                                           Source: DOD


                                           The President announced in 1981 that the B-1B would be deployed. It
                                           first flew in October 1984, achieved initial operational capability in Sep-
                                           tember 1986, and completed production in 1988. The B-1B has had
                                           numerous problems2 and DOD’S Operational Testing and Evaluation
                                           Director does not consider it to be fully capable. The Air Force informed
                                           us that system maturity is planned for 1994.




                                           ‘These problems are described in our February 1989 BlB report and in Strategic Bombers: Logistics
                                           Decisions Impede B-1B Readiness and Supportability (GAO/NSIAD-89-129, May 19, 1989).



                                           Page 27                                                   GAO/NSLAD-90-226
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                                      Chapter 3
                                      Airborne Systems




Acquisition Costs                     According to the funding summary in the 1989 SAR, acquiring the B-1B
                                      will cost about $27.4 billion, including about $27.2 billion for 1982 and
                                      beyond.” The estimate included 100 baseline B-1Bs4 equipped to carry
                                      gravity bombs, AICMS, and the original SAM; and a 6-year extension of
                                      the acquisition program to correct defensive avionics system defects and
                                      obtain deferred support equipment.

                                      In February 1989 we reported that the Air Force had incurred costs of
                                      about $31 billion for 100 B-lBs, including $3.7 billion for non-baseline
                                      items excluded from the SAR. The Air Force plans to spend an additional
                                      $669 million to enhance the B-1B with the SRAMII and two satellite sys-
                                      tems. Another $365.8 million for construction was excluded from the
                                      s&s overall estimate.


O&S costs                             The Air Force Cost Center provided us with estimates of O&S costs for a
                                      typical unit of 16 B-1Bs from 1989 through 1997. These estimates are
                                      shown in table 3.1.

Table 3.1: Estimated O&S Costs of a
B-1B Unit                             Then-year dollars in millions
                                                                                          Operation and              Military
                                      Fiscal vear                  Procurement             maintenance         comoensation            Total
                                      1989                                   $58.4                   $41.5                $41.5       $141.4
                                      1990                                    60.6                    41.3                 42.4        144.3
                                      1991
                                      ----                                    23.1                    42.7                 43.5        109.3
                                      1992                                    23.7                    44.1                 44.6        112.4
                                      1993
                                      -_____                                  23.9                    45.4                 45.6        114.9
                                      1994                 --__       ~.-     24.5                    46.6                 46.7        117.8
                                      1995                                    25.0                    47.8                 47.8        120.6
                                      1996                                    25.4                    49.1       -         49.0        123.4
                                      1997                                    25.8                    50.3                 50.1        126.2
                                      Note: Totals may not add due to rounding.




                                      “According to the SAR, the $27.4 billion sum equals about $20.3 billion in 1981 dollars. The SAR also
                                      states that the cost is over $20.8 billion in 1981 dollars. The Air Force informed us that the discrep-
                                      ancy was due to the use of expired appropriations. For more information, see our report, Strategic
                                      Bombers: B-1B Program’s Use of Expired Appropriations (GAO/NSIAD-89-209, Sept. 5, 1989).
                                      4Crashes have reduced the B-1B fleet to 97.



                                      Page 28                                                      GAO/NSIAD90-226Strategic Weapons
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Airborne Systems




We also obtained o&s data for 1986 through 1988 from the Air Force
Cost Center. We used these data and guidance from Air Force and DOD
officials to project o&s costs for the entire B-1B fleet from 1986 to 2020
at $27.4 billion. Figure 3.3 combines the SAR'S acquisition cost estimate
with the o&s cost projection.




Page 29                                      GAO/NSIAD-90-220Strategic Weapons
                                                        Chapter 3
                                                        Airborne Systems




Figure 3.3: EMmated Barellne B-18 Costa From 1992 to 2020
0 Then-Year Dollars in Billions




    1982     1982     1984    1085   1986   1987   1986     1959     1990   1991   1992   1993   1994   1995   1996   1991   1998   1999   2000
    Fiscal Years


                                                   I~         Acquisition
                                                              o(Ls




                                                        Page 30                                                 GAO/NSIAD-90-226Strategic Weapons
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1001   2002   2002   2004   2005   2006   2007     2908    2999   2010   2011   2012   2013   2014   2015   2016   2017   2018   2019   2020




                                                 Page 31                                                GAO/NSIAD-90-226Strategic Weapons
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                             Airborne Systems




                             Acquiring 133 B-2 bombers and operating four wings of B-2s through
B-2 Bomber                   2020 could cost over $114 billion.” DOD'S April 1990 decision to acquire
                             only 76 B-2s and operate two wings could reduce this amount by over
                             $30 billion.


Background                   The B-2, depicted in figure 3.4, first flew in 1989. According to DOD, the
                             B-Z has been designed to penetrate Soviet air defenses at both high and
                             low altitudes by using special shaping, radar absorbing materials, and
                             other technologies to reduce its detectability. It will be able to carry up
                             to 25 tons of payload, including 16 to 20 SRAM 11s.

Figure 3.4: The B-2 Bomber




                             Source: DOD




                             “At the time of our work, many aspects of the R-2 program were designated special accessrequired.
                             We restricted our work to data that was not designated special accessrequired.



                             Page 32                                                    GAO/NSIAD-90-226Strategic Weapons
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                    Alrbome Systane




Acquisition Costs   In 1986 DOD estimated that the B-2 would cost $58.2 billion to acquire.
                    By mid-1989 the estimated cost of 133 B-2s had grown to $70.2 billion
                    due to an incomplete aircraft design at the start of manufacturing,
                    underestimated material costs, and production schedule extensions. The
                     1989 estimate assumed that (1) the Congress would approve at least
                    $7.5 billion annually for four consecutive years, (2) $6.2 billion would be
                    saved through cost saving initiatives and multiyear procurement, and
                    (3) the schedule would be met, despite less progress than planned in
                    improving the manufacturing processci

                    After we completed our work, DOD raised its estimate for 133 B-2s to
                    $75.4 billion before announcing in April 1990 that it would acquire no
                    more than 75 B-2s for an estimated cost of $61.1 billion. It did not
                    release the annual allocation of this cost.


o&s costs           The Air Force estimated the average annual o&s cost, in 1981 dollars, of
                    a wing of 30 B-2s. According to DOD, the estimate included direct costs of
                    supporting primary personnel and operations; indirect costs of base
                    operating support personnel; and depot costs of overhauls, component
                    part repairs, modification installation, and software support.

                    We inflated this estimate and multiplied the result to calculate the
                    average annual cost of four B-2 wings. To approximate O&S costs during
                    deployment, we prorated the estimate by the data in the then-current
                    delivery schedule, although this approach would not capture any above
                    average o&s costs that might result from a lack of system maturity.

                    We projected the o&s cost of four B-2 wings through 2020 at $44.1 bil-
                    lion. The annual allocation of DOD’S 1989 acquisition cost estimate for
                    133 B-2s and our O&Sprojection for 4 B-2 wings are depicted in
                    figure 3.5. In April 1990 DOD announced that it would operate two B-2
                    wings. Based on our O&S cost projection for four wings, two wings could
                    cost about $22 billion through 2020.




                    “These issues are discussed in our February 1990 E2 report.



                    Page 33                                                       GAO/NSIAD-90-226 Strategic Weapons
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                                                            Airborne      Systems




Figure 3.5: Cost of Acquiring 133 B-28 and Operating 4 B-2 Wings Through 2020
18 Then-Year Dollars in Billions




14




12




10




8




      Pro-     1989    1990        1991   1992   1993   1994           1995     1996   1997   1999   1999   2000   2001   2002   2003   2004   2005   2006
      1989
      Fiscal Years

                                                                        Acquisition
                                                        ~               o&.s




                                                            Page 34                                                       GAO/NSIAD-90-226Strategic Weapons
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                                                 Airborne   Systems




2007   200s   2009   2010   2011   2012   2013      2014    2015      2016   2017   2018   201s   2020




                                                 Page 35                                                 GAO/NSIAD-90-226Strategic   Weapons
                                       chapter    3                                                            ,
                                       Airborne       Systems




                                       EARand Air Force data indicated that acquiring, operating, and sup-
Modified B-52 Bomber                   porting modified B-62s from 1982 to 2020 could cost $678 billion.


Background                             The Air Force acquired almost 300 B-52G and B-62H bombers from 1968
                                       to 1962. These aircraft continue to make up the bulk of the U.S. stra-
                                       tegic bomber force. Figure 3.6 shows a B-52 bomber that has been modi-
                                       fied to carry ALCMS.

Figure 3.6: The Modified B-52 Bomber




                                       Source:    DOD


                                       The B-62’s strategic role is shifting from penetrating Soviet airspace to
                                       carrying long-range cruise missiles. To allow the bomber to carry ALCMS
                                       and to improve its avionics, the Air Force began the B-52 Cruise Missile
                                       Integration and Offensive Avionics System program in 1977. Air Force
                                       officials informed us that 264 B-52s had been fitted with the Offensive
                                       Avionics System by the end of 1987. Of these aircraft, 195 will be inte-
                                       grated with ALCMS by the end of 1990.


                                       Page 36                                     GAO/NSIAD-DO-226
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                    Chapter 2
                    Airborne System3




                    When we conducted our work, Air Force officials stated the B-52G and
                    B-52H were not scheduled for retirement and that these aircraft could
                    remain in service into the 2020s. The Air Force plans to reduce its B-52G
                    force.


Acquisition Costs   The final SAR for the B-62 modification program identified acquisition
                    costs of about $2.3 billion, including about $1.2 billion for 1982 and
                    beyond.


O&S costs           The Air Force Cost Center provided us with estimated annual o&s costs
                    for a typical unit of 14 B-52Gs and a typical unit of 19 B-62Hs for 1990
                    through 1997, It also provided historical o&s cost data.7 With assistance
                    from Air Force and DOD staff, we adjusted and inflated these estimates
                    to project about $56.5 billion in O&Scosts for modified B-62s through
                    2020.


                    DOD   and Air Force data indicated that the KC-135R will cost about $72.6
KC-135R Tanker      billion to acquire, operate, and support from 1982 to 2020.


Background          The Air Force is acquiring KC-135R tankers by modifying existing
                    KC-135 tankers with more fuel-efficient engines, strengthened landing
                    gears, and other improvements. It initiated full-scale production in 1981
                    and began operating the first KC-135R squadron in June 1985. The Air
                    Force informed us that 482 Air Force KC-135s will be converted by the
                    end of 1998. From 1998 to 2002,154 Air National Guard and Air Force
                    Reserve KC-135Es will be converted. Figure 3.7 shows a KC-135R.




                    7The historical data included modified and unmodified B-6%. We adjusted annual costs to reflect the
                    modification program’s   pace.



                    Page   37                                                  GAO/NSIAD90-226 Strategic Weapons
                                  Chapter 3
                                  Airborne Systmna




Figure 3.7: The KC-1 35R Tanker




                                  Source:   DOD




Acquisition Costs                 The 1989 KC-135R SAR estimated that acquiring 637 KC-135RsH will cost
                                  almost $12.6 billion. The Air Force’s KC-135R program monitor subse-
                                  quently provided us with an adjusted annual summary that reflected
                                  the President’s April 1989 revised budget and projected post-1981
                                  acquisition costs at about $12.3 billion.




                                  ‘One KC-136 crashed during 1989 after the SAR was released.



                                  Page 38                                                  GAO/NSIAIMKk226Strategic Weapons
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                                      Ah-borne Systems




O&S costs                             We obtained the Air Force Cost Center’s estimates for operating and
                                      supporting a unit of 13 Air Force KC-135Rs from 1989 to 199’7. These
                                      estimates are shown in table 3.2.
Table 3.2: Estimated O&S Costs of a
KC-1 35R Unit                         Then-year dollars in millions                                                                    .-
                                                                                      Operation and               Military
                                      Fiscal year                 Procurement          maintenance          compensation             Total
                                      1989 -                                 $4.8                 $8.8         .    $12.2             $25.8
                                      1990           -                        4.6                 13.6                  12.5           30.6
                                      1991
                                      -----.._          _____-                5.2                 14.1                  12.8           32.1
                                      1992
                                      _,.__
                                         ---._-..I-.-.----.                   5.6                 14.6                  13.0           33.i
                                      1993
                                      .---~--         - ____--                5.3                 15.0                  13.3           33.6
                                      1994                                    5.5                 15.4                  13.5           34.4
                                      1995                                    5.6                 15.9
                                                                                                    .-_..               13.8           35.2
                                      1996                       ~-           5.7                 16.3                  14.0
                                                                                                             -.-____ _----..___...-.-~ 36.0
                                      1997                                    5.8                 16.7                  14.4           36.8
                                      Note: Totals may not add due to rounding.

                                      At our request, the Cost Center estimated the o&s costs of Air National
                                      Guard and Reserve KC-135R units.!’ We adjusted and prorated the Cost
                                      Center estimates with other Air Force data and inflated the results to
                                      project KC-135R O&S costs of $60.4 billion from 1982 to 2020. Figure 3.8
                                      combines this projection with the acquisition cost estimate.




                                      ‘The Cost Center assumed that future Air National Guard and Reserve KC-136R operations will
                                      resemble current KC-136 operations.



                                      Page 39                                                  GAO/NSIAIM%226 Strategic Weapons
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                                                          Chapter 3
                                                          Airborne Systems




Figure 3.8: Estimated KC-135R Costs From 1982 to 2020
3 Then-Year   Dollar8 In Billion8




    1082      1982     1984         1951   1985   1987   1988   1989     1990        leol        1892   1993   1994   1995   1998   1997   1898   i9gs   2ooo
    F&al   Years


                                                                  Acquisition

                                                                  Air Force O&S

                                                                  Reservea      B Air National     Guard OX3




                                                           Page 40                                                            GAO/NSIAD96-226 Strategic Weapons
                                                 Chapter 3
                                                 Airborne Systems




       L      L      L      L      L      L       L
2001   2002   2092   2004   2005   2ooo   2907     2009    2009   2010   2011   2012   2013   2014   2015   2016   2017   2019   2019   2020




                                                 Page 41                                                GAO/NSIAD-96-226Strategic Weapons
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                          Chapter 3
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                          Air Force cost estimates indicate that SRAM II acquisition and o&s could
SRAM II                   cost about $4.1 billion through 2020.

                                                                                                     -
Background                The supersonic, air-to-surface SRAM II, shown in figure 3.9, will replace
                          the aging SRAM-Aand be carried by the B-1B and B-2. According to DOD,
                          the SRAMII will be able to penetrate advanced defenses to strike
                          defended, hardened, and relocatable targets.
                                                                                                     -
Figure 3.9: The SRAM II




                          Source: Air Force

                          Over 1,600 SRAM11swill be built and 1,225 will be deployed in 10 squad-
                          rons. At the time of our work, the first launch was planned for Sep-
                          tember 1990. Initial and full operational capability are scheduled for
                          April 1993 and October 1998, respectively. The 1990 EARindicated that
                          the first flight is now scheduled for April 1991 and first deliveries are
                          planned for 1994. According to the Air Force, the SRAMII’s service life is
                          25 years. Steady-state operations will begin in 2001.




                          Page 42                                     GAO/NSLAD!M-226Strategic Weapons
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Acquisition Costs   According to the SAR, the SRAM II will cost over $2.3 billion to acquire,
                    including development associated with B-1B integration.


O&S costs           The SRAM II SAR included an average annual steady-state o&s cost esti-
                    mate for SRAM11son a unit of B-1Bs. It does not reflect the cost of
                    SRAM 11son B-29. According to the SAR, the estimate includes personnel,
                    including base-level personnel support; o&s consumables; direct depot
                    maintenance, including staff and materials for component repair,
                    nuclear test instrumentation kit repairs, surveillance testing, and depot
                    supply; sustaining investment, including replenishment spares, support
                    equipment maintenance, and software support; other direct costs,
                    including follow-on test and evaluation flights and transportation; and
                    indirect costs, such as personnel acquisition and training.

                    The SAR did not specify the number of B-1B or B-2 units that will carry
                    the SRAMII. At our request, Air Force officials provided estimates of
                    total SRAMII O&Scosts from 1993 to 2007. We inflated these estimates
                    from 1983 dollars to then-year dollars and inflated the 2007 estimate
                    through 2020. Figure 3.10 combines the $1.7 billion o&s cost projection
                    with the acquisition estimate.




                    Page 43                                       GAO/NSIAIbfK%226Strategic Weapons
                                                              Chapter 3
                                                              Airborne Systema




Figure 3.10: Estimated SRAM II Cost8 From 1984 to 2020
3%~ Then-Year       Dollarsin Millions




loo
                                              I
loo

                                            -P
100




      1984      1985        1996     1967   1099   1080   1000     1001        1002   1093   1994   1995   1999   1997   1999   1999   2999   2001   2002
      FIscalYears


                                                                       Acquisition
                                                          ~            o&s




                                                              Page44                                                      GAO/NSIAB96-226 Strategic Weapons
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                        Chapter 3
                        Ahborne Systems




                        The final ALCM SARindicates that the ALCMcost almost $2 billion to
ALCM                    acquire during and after 1982. o&s costs were unavailable.


Background              DOD describes the ALCM-shown      in figure 3.1 l-as a subsonic, nuclear
                        air-to-surface missile with a range of about 1,360 nautical miles. Up to
                        20 ALCMScan be carried by a B-62. The B-LB SARindicates that the B-1B
                        will also be able to carry 20 AJXMs.

Figure 3.11: The ALCM




                        Source: DOD


                        WD initiated the ALCMprogram in 1974. The first squadron of ALCM-
                        equipped B-52s began operating in December 1982. Over 1,700 ALCMS
                        were produced. Full operational capability is scheduled for 1990.




                        Page 46                                    GAO/NSLAD-96-226
                                                                                  Strategic Weapons
                                        Chapter 3
                                        Alrhome Systeme




Acquisition Costs                       The final ALCM SAR, completed in December 1985, estimated ALCM acqui-
                                        sition cost at about $4.1 billion. About $2 billion was appropriated for
                                        1982 and beyond, as shown in figure 3.12.


Figure 3.12: ALCM Acquiritlon   Costa
From 1982 to 1989
                                        090 Than-YearDolkm In Mllllone




                                               r
                                        700


                                        wo


                                        1199


                                        400


                                        300


                                        209


                                        100


                                          0
                                                      A
                                               1982   1993    1964       19M   1996   1997      1999   1999
                                               Fimal Ym




O&S Costs                               Air Force officials were unable to provide us with complete and current
                                        Arm 08s cost estimates.


                                        Data in the FAR indicates that acquiring, operating, and supporting the
ACM                                     ACM through 2020 may cost about $9.6 billion.



Background                              According to the December 1989 SAR, the ACM will require operational
                                        integration with the B-52 and B-1B. Figure 3.13 shows a B-52 carrying
                                        ACM?,.




                                        Page 47                                              GAO/NSIALMl@226Strategic Weapons
                              Chapter 3
                              Airborne System.9




Figure 3.13: ACMs on a B-52




                              Source: DOD


                              The first ACMflight occurred in July 1985. In July 1986 DODdecided to
                              begin initial low-rate production. Although serious flight test problems
                              have hampered the ACM’S progress, 1othe Air Force plans to achieve ini-
                              tial operational capability in March 1991 and to finish procuring over
                              1,400 ACMsin 1995.


Acquisition Costs             According to the SAR, the ACM will cost about $6.7 billion to acquire. The
                              estimate included aircraft integration costs but excludes $979.9 million
                              in nuclear costs.


O&S costs                     According to the SAR, during steady-state operations an ACM-equipped
                              bomber wing will incur average annual ACM o&s costs of about $14.3 mil-
                              lion in 1983 dollars, including direct personnel costs; depot maintenance
                              staff-hours, interim contractor support, and surveillance of the ACM;


                              “‘As of December 1988, more than one-half of the test flights had crashed. In January 1989, DOD’s
                              Operational Test and Evaluation Director reported that the ACM had “...failed to demonstrate accept-
                              able performance in several areas that will severely affect its operational effectiveness and suita-
                              bility if not corrected.”



                              Page   48                                                  GAO/NSLAD-90-226
                                                                                                        Strategic Weapons
Chapter 3
Alrbome Systems




indirect personnel costs at operating facilities; and transportation, mate-
rial management, and system management and contractor sustaining
support. The estimate is equivalent to $18.3 billion in 1990 dollars.

The SAR did not specify the number of wings to be equipped with the
ACM. Air Force officials informed us that four bomber wings will carry
ACM%

Because the SAR does not specify full operational capability or system
maturity dates, we assumed that full operational capability would occur
at the end of acquisition. To approximate o&s cost during deployment,
we prorated the average annual cost estimate by the M’S production
data. After inflating the results, we projected o&s costs from 1990 to
2020 at $2.9 billion. Figure 3.14 depicts the acquisition cost estimate and
o&s projection.




Page 49                                               GAO/NSIAB90-226 Strategic Weapons



                                   ’
                                             .’ ‘W,
                                       $9,
                                                           Chapter 3
                                                           Airborne Systems




Figure 3.14: Estlmated ACM Costs From 1982 to 2020                                                                                   .’
10   Then-Year    Dollars in Millions                                                                                         '%j




                                                                                     -


                                                                                            -




      1982       1983     1984      1985   1886   1987   1988   1989   1090   1991   1892       1993   1994   199s   1996   1097          1996   1099   2000
      Fiscal Years




                                                                                                                               i:,

                                                           Page 50                                                    GAO/NdAD-90-226 Strategic           Weapons
                                                chaptm3
                                                AirhorxwJsymtams




       L      L      L     L      L      L       L      L        \          L      L      L      L      L       L       L      L      L      L
2ool   2002   2003   a04   2ooo   2ooo   2007    2002     2009       2010   2011   2012   2013   2014   2011     2016   2017   2018   2019   2020




                                                PIge 51                                                        GAO/NSIAD@O-226
                                                                                                                             Strategic Weapona
Chapter 4

Intercontinental Ballistic Missiles


                                        The strategic modernization program includes the Peacekeeper, Rail
                                        Garrison, and Small ICBM programs. Current estimates indicate that the
                                        Peacekeeper and Rail Garrison programs will cost about $39 billion from
                                        1982 to 2020. Small ICBM costs are unknown, pending decisions on its
                                        configuration, force structure, and basing.

                                        The 1990 Peacekeeper and Rail Garrison SARSreflected program changes
Peacekeeperand Rail                     announced in April 1989. Data in these SARS and a past o&s estimate
Garrison                                suggest that the revised Peacekeeper program could cost $26.7 billion to
                                        acquire and $12.3 billion for O&S through 2020.

Background                              Full-scale development of the 4-stage, lo-warhead Peacekeeper began in
                                        September 1979. It achieved initial operational capability in 1986 and
                                        full operational capability in 1988. The Air Force has 60 Peacekeepers
                                        now based in silos. DOD plans to move these missiles to the mobile Rail
                                        Garrison basing system, which is scheduled to achieve initial operational
                                        capability’ in 1992 and full operational capability in 1994. Figure 4.1
                                        depicts a Peacekeeper Rail Garrison train.
Figure 4.1: Peacekeeper ICBMs in Rail
Garrison




                                        Source: DOD



                                        ‘This capability is defined as one train on alert with two missiles and one train for training.



                                        Page 62                                                        GAO/NSIAD-90-226Strategic Weapons
                    Chapter 4
                    Intercontinental Ball&k Missiles




                    Before 1986 the Air Force had planned to base 100 Peacekeepers in silos
                    but in 1986 the Congress limited the number of silo-based Peacekeepers
                    to 50. DOD then planned to retain 60 Peacekeepers in silos and deploy
                    another 60 in Rail Garrison. However, in April 1989 the Secretary of
                    Defense announced that the 50 silo-based Peacekeepers would be
                    redeployed onto Rail Garrison. The Congress later limited the number of
                    deployed Peacekeepers to 50.


Acquisition Costs   The 1990 Peacekeeper SAR estimated that 173 Peacekeepers and the silo
                    basing system will cost $19.6 billion to acquire. The 1990 Rail Garrison
                    SAR estimated that the mobile basing system will cost over $7.1 billion to
                    acquire.


O&S costs           In 1987 the Peacekeeper program office estimated the average annual
                    O&S cost of 60 silo-based Peacekeepers at about $170.8 million in 1982
                    dollars. The 1990 Rail Garrison SAR projected the average annual steady-
                    state o&s cost of 60 Peacekeepers in Rail Garrison at $214.1 million in
                    1982 dollars.’ We inflated and combined the estimates and found that
                    the O&S cost of deploying 50 Peacekeepers through 2020 could be about
                    $12.3 billion. Figure 4.2 depicts the acquisition and o&s cost estimates.




                    -‘The Rail Garrison SAR O&S estimate was based on 50 operational missiles. It assumed 26 operational
                    and 2 training trains at 2 Minuteman and 5 non-Minuteman bases and 66 operational test and evalua-
                    tion flights. It included personnel and depot maintenance costs.



                    Page 53                                                    GAO/NSIAD-90-226Strategic Weapons
                                                       Chapter 4
                                                       IntercontinentalBaUsticMtssfles




Flgure 4.2: Peacekeeper Costs From 1983 to 2020
5 Then-Year Dollars In l3illlons




                    L        L       L      L      L      L
    1983     1984     1986    108s   les7   1PBa   1989     loo0       lW1       1992    1993   1994   1995   low   1987   1990   1989   2ooo   2001
    Fiscal Yeare


                                                   0           Acquisltlon
                                                   ~           o&S




                                                       Page 14                                                        GAO/NSIAMO-226 Strategic Weapons
                                                 Chapter 4
                                                 Intercontinental Ballistic Missiles




2002   2002   2004   2005   2005   2007   2ooa    2009     2010   2011   2012   2013   2014   2015   2018     2017   2015   2019   2020




                                                 Page 66                                                    GAO/NSIAD-90-226Strategic Weapons
             Chapter 4
             Intercontinental   Ballietic   Missiles




             At the time of our review, the Air Force could not provide us with esti-
Small ICBM   mates of the Small ICBM program’s acquisition and OM costs because of
             uncertainties concerning missile quantities, basing characteristics, and
             other factors.


Background   The Small ICBM, shown in figure 4.3, is a three-stage, solid propellant
             ICBM. The President approved Small ICBM development in April 1983 to
             place Soviet hard targets at risk while allowing more flexible and
             survivable basing than silo-based ICBMS. Full-scale development began in
             December 1986.




             Source: DOD



             Page pi6                                    GAO/NSIAD-90-226Strategic Weapons
               Chapter 4
               Intercontinental Ballistic Missiles




               In its 1989 budget request, DOD recommended that the Small ICBM pro-
               gram be terminated because of cost. The 1989 SAR reflected DOD'S inten-
               tion to terminate the program by September 1989. In April 1989 DOD
               opted to continue the program and provide funds for 1989 through
               1994. Initial operational capability is planned for 1997 but full opera-
               tional capability has yet to be scheduled.


Program Cost   At the time of our review, DOD had not estimated total Small ICBM pro-
               gram costs because it had not determined the total number of Small
               ICBMS and warheads to be produced or the missile’s basing mode.
               Accordingly, the SARSdid not include acquisition costs beyond 1994.
               Acquisition costs from 1984 to 1994 were estimated at about $7.3
               billion.

               The Small ICBM program office has estimated the total cost of various
               Small ICBM force structures and basing configurations. In December 1988
               it estimated that 300 Small ICBMS, with one or two warheads each, that
               are based on hard mobile launchers at Minuteman sites and in random
               movement would cost $17.8 billion in 1988 dollars to acquire and $6.1
               billion in 1988 dollars for o&s over 20 years. It also estimated that 250
               Small ICBMS, with two warheads each, that are based in silos would
               cost about $12 billion in 1988 dollars to acquire and $5.3 billion in 1988
               dollars for o&s over 20 years.




               Page 67                                     GAO/NSIALMO-226Strategic Weapons
                                                                                                                            .

Chapter 6                                                                                                                         .

Trident II Missile and Submarine


                                    The Navy estimated that the total life-cycle cost of acquiring, operating,
                                    and supporting 899 Trident II D-6 SLJ3Ms and 21 Trident II submarines
                                    will be $141 billion between 1978 and 2032. Of this amount, the Navy
                                    estimated that $121.8 billion will be needed between 1982 and 2020. O&S
                                    costs account for $70.1 billion from 1982 to 2020, or almost 58 percent.
                                    Acquisition and o&s costs for the Trident II systems are shown in
                                    figure 6.1.


Figure 5.1: Trident II SLBM and
Submarine Costs From 1982 to 2020
                                    80        Then-Yom     Dollan      in


                                    70


                                    60


                                    60


                                    40


                                    30


                                    20


                                    10


                                     0




                                    lrldont       II Systomo


                                              1        ] O&S
                                                         Aoquisition




                                    The Trident II program consists of developing and deploying the
                                    Trident II D-5 SLBM, building one Trident II submarine per year, backfit-
                                    ting eight Trident I submarines with the D-5, and building and modifying
                                    facilities at two Trident bases.’



                                    ’ For more information, see Navy Strategic Forces: Trident II Proceeding Toward Deployment (GAO/
                                    NSIAD-89-40, Nov. 21, 1988).



                                    Page 58                                                   GAO/NSLAD-90-226
                                                                                                             Strategic Weapons
                                      Trident II Mh~ile and Submarine




Background

Trident II D-5 Weapon                 The D-6 strategic weapon system consists of the D-6 SLBM and related
System                                navigation, launcher, fire control, guidance, and test instrumentation
                                      subsystems. It is a follow-on to the Trident I C-4 weapon system and
                                      includes the larger three-stage, eight-warhead D-6 SLBM and improved
                                      systems for stellar guidance, shipboard inertial navigation accuracy, fire
                                      control, and launch.

                                      The Navy expects that the D-S’s size, accuracy, and payload will allow it
                                      to attack the entire range of Soviet targets. Full-scale development
                                      began in October 1983. Initial operational capability is scheduled for
                                      March 1990. The EARindicated that 899 D-6s will be acquired. Figure 6.2
                                      shows a D-6 SLBM being launched.

Flguro 5.2: The Trident II D-S SLEW




                                      Source: DOD




                                      Page 69                                     GAO/NSIAD-90-226Strategic Weapons
                                      Chapter6
                                      Trident II Missile and Submarine




Trident II Submarine                  According to the Navy, Trident II submarines will operate at higher
                                      speeds than previous nuclear-powered ballistic missile submarines. Each
                                      will carry 24 D-6 SIBMS. According to the 1989 SAR,the Navy plans to
                                      acquire 13 Trident II submarines at a shipbuilding rate of one per year
                                      through 1994. The U&S. Tennessee, shown in figure 6.3, is the first Tri-
                                      dent II submarine.

Flgure 6.3:khe Trident II Submarine




                                                                         ,_,, ,,,,,, ,,,,,,
                                                                                        ,. -,__.
                                      Source: DOD

                                      The Navy has eight Trident I submarines equipped with the C-4 SLBM.
                                      Beginning in 1993, the Navy will backfit one Trident I submarine per
                                      year with the D-6 system. The 8 backfitted submarines and the 13 new
                                      Trident II submarines will result in a total Trident II fleet of 21
                                      submarines.




                                      Page 60                                               GAO/NSIAD-90-226Strategic Weapons
                Chapter 5
                Trident II Missile and Submarine




                The Navy expects each Trident II submarine to have an operating life of
                30 years with overhauls occurring around 12 and 17 years after
                delivery. It plans to have two base facilities for Trident II support. One
                facility, at Kings Bay, Georgia, will accommodate the first 10 Trident II
                submarines, beginning in fiscal 1990. Early in the lOOOs,the Navy plans
                to begin deploying Trident II submarines from a second facility in
                Bangor, Washington, where the Trident I submarines are now based.


                The Navy estimates that the Trident II program will cost about $12 1.8
Program Costs   billion to acquire, operate, and support between 1982 and 2020.
                Figure 6.4 depicts the acquisition and O&S costs of the Trident II subma-
                rine and missile through 2020.




                Page 61                                     GAO/NSIAD-90-226Strategic Weapons
                                                                                                                                                         ,
                                                        chapter 5
                                                        Trident II Missile and Submarine




Flgure 5.4: Estimated Trident II Costs From 1982 to 2020
5 Then-Year     Dollarsin Billions




                                      r                                                               r




   1882     1982       1054     191   1085   1987   ls86    1989    1900     1991     1992     1993    1904    1995   1995   1997   1998   IS99   2ooa
   Fiscal Yew


                                                    1      1 Acquisition -Trident II D-5 Missile
                                                    ~         O&S - Trident II D-5 Missile
                                                              Acquisition - Trident II D-5 Capable Submarine
                                                              O&S -Trident II D-5 Capable Submarine




                                                        Page 62                                                        GAO/NSIAD-90-226Strategic Weapons
    Chapter 6
    Trident II Missile and Submarine




    i       L        L      L      L      L      A      A       L       MM-I
r    2008     2009   2010   2011   2012   2013   2014   2015     2016   2017   2018   2019   2020




    Page 63                                                    GAO/NSIAD-90-226Strategic Weapons
                    Chapter 6
                    Trident II Missile and Submarine




Acquisition Costs   According to the 1989 SARS, the acquisition cost of the D-6 weapon
                    system and the Trident II submarine after 1981 will be $36.3 and $16.4
                    billion, respectively. These amounts include (1) research and develop-
                    ment of the D-6 weapon system and Trident II submarine, (2) procure-
                    ment of 899 missiles, (3) construction of 13 Trident II submarines, and
                    (4) military construction to support Trident II operations. These costs do
                    not include the cost of acquiring the Trident I submarines or the Depart-
                    ment of Energy’s nuclear costs.


O&S costs           We asked the Navy to estimate Trident II O&Scosts, based on the pro-
                    grams described in the 1989 SARS. It estimated that the D-5 weapon
                    system and 21 submarines would cost $38.8 billion and $31.3 billion,
                    respectively, to operate and support between 1982 and 2020. These
                    costs included Trident I backfits, overhauls, missile industrial facility
                    equipment maintenance,” and general supp~rt.:~ According to the Navy,
                    Trident II O&S costs will end with the retirement of the last submarine in
                    2032. At our request, the Navy did not include Trident I o&s costs.




                    ‘According to the Navy, a missile industrial facility is a government-provided facility. The govern-
                    ment furnishes contractors with equipment to assist in manufacturing missiles.

                    -‘According to the Navy, general support costs includes the base infrastructure costs, such as housing,
                    chapels, and theaters.



                    Page 64                                                      GAO/NSIAD90-226 Strategic Weapons
Page 65   GAO/NSIAIHO-226 Strategic Weapons
Qpendix   I

Comments From the Department of Defense *



                               DIRECTOR   OF DEFENSE     RESEARCH    AND   ENGINEERING

                                           WASHINGTON.
                                                    DC 20301-3010


                                                                                         2 1 MAY 1990

              Mr. Frank C. Conahan
              Assistant   Comptroller   General
              National   Security   and Internal        Affairs     Division
              U.S. General Accounting Office
              Washington,   D.C. 20546
              Dear Mr. Conahan:
                   This is the Department of Defense (DOD) response to the
              General Accounting Office  (GAO) draft report entitled  "STRATEGIC
              WEAPONS: Long-Term Costs Are Not Reported to the Congress,'8 Dated
              March 16, 1990 (GAO Code 392478), OSD Case 8272.
                      The Department basically          concurs with the report        findings.
              However, the DOD does not completely concur with the methodology
              used to demonstrate the relative           life-cycle  costs of the individual
              modernization         programs.     A more useful analysis       would show each
              program's complete life-cycle            cost in constant-year     dollars,
              clearly     identifying:        (1) the funding which has already been
              obligated      through FY 1990; and (2) the cost remaining to complete
              each planned program and to support it to some fixed date.                     The
              latter    information       would provide the type of discretionary          cost
              data that are generally           needed. In addition,     an important
              perspective       is that procurement of all elements is completed by
              the year 2000. All costs associated with the decades in the next
              century are with operations            and support.   Conveying the costs in
              then-year      dollars,     rather than constant-year     dollars,    tends to
              exaggerate the operations           and support component.
                     The GAO correctly   stated that the DOD does not routinely
              provide the Congress with complete operations       and support cost
              estimates.     Routine reporting  requirements   in the past have not
              included   this type of data attributable     to specific systems.
                      Each finding is specifically   addressed in the enclosure.
              The DOD appreciates    the opportunity   to comment on the draft
              report.
                                                       Sincerely,


                                                        &h&p
                                                       Charles M. Herzfeld

              Enclosure



                      Paye                                                 GAO/NSIAD-90-226
                                                                                         StrategicWeapons
         Appendix I
         CommentsFrom the Department of Defense




                 GAO DRAFT REPORT- DATEDMARCH16, 1990
                     (GAO CODE392478) OSD CASE 8272

                     "STRATEGIC WEAPONS: MNG-TERM COSTS
                       ARE NOT REPORTEDTO THE CONGRESS"
                                        *****

                        DEPARTMENT
                                 OF DEFENSECOMMBNTS
                                        FINDINGS

            Backaround: St=ateaic Nud.%arT=hd . The GAOobserved
fi%Y=: for the past three decades, the United States has had a
strategic        nuclear      Triad   of    airborne      systems,    land-based
intercontinental         ballistic     missiles,     and submarine-launched
ballistic    missiles.       According to the GAO, at the beginning of FY
1982, the President         announced a program to modernize the triad.
The GAOreported that the strategic            modernization    program includes
12 Air Force and Navy weapon systems and, once acquired,                      the
systems could be operational          for decades.
The GAO indicated       that   the program includes     the following   systems:
   the    B-18 bomber:
   the    B-2 bomber;
   the    B-52 bomber modifications:
   the    KC-135R tanker aircraft:
   the    Air-Launched    Cruise Missile;
   the    Air-Launched    Advanced Cruise Missile:
   the    Air-Launched    Short Range Attack Missile    II;
   the    Peacekeeper ICBM in Minuteman silos;
   the    Train-based   Peacekeeper Rail Garrison system;
   the    Small Intercontinental     Ballistic Missile;
   the    Trident II D-5 Submarine-Launched ballistic       missiles;
   and
   the    D-5 capable    Trident   II    (Ohio-class)   submarine.
The GAO also observed that a system's total cost to the Government
is the cost of acquiring,        operating,   and supporting the system over
its entire      life-cycle.       The GAO noted that,       according     to DOD
officials,    in most cases,      the bulk of a system's total cost would
be incurred during the operational          phase. The GAOpointed out that
operation   and support costs consist           of the direct     and indirect
costs of operating          and maintaining       a system,     including    (1)
personnel,     (2) fuel and other consumables,          (3) spare parts,     (4)
replenishment,        (5) direct     depot maintenance,      and (6) interim
contractor    support.




       Page 67                                           GAO/NSL4D-SO-226
                                                                        Strategic Weapons
                                                                                                      .
                             Appendix1
                             C&unentaFromtheDepartmentofDefense




                      Regarding acquisition'      costs,    the GAO explained     that the DOD
                      provides acquisition    cost estimates of major system to the Congress
                      in Selected Acquisition      Reports.     The GAO noted that the DOD was
                      required to include operation and support cost estimates in those
                      Selected Acquisition     Reports first     submitted after January 1986,
                      for    programs that     were in,        or had completed,      full-scale
Now on pp. 2, 8-9.    development.     (p. 2, pp. lo-12/GAO Draft Report)
                      DOD m:             Concur.   The general proportions       of a system's
                      life-cycle    cost are typically    attributed    to Research,
                      Development, Test and Evaluation          (lo-15 percent),   Procurement
                       (25-35 percent),     and Operations (55-65 percent) when defined in
                      constant-year     dollars.   It should be noted, however, that when
                      operations    and support costs are expressed in then-year dollars,
                      over a long period (such as 38 years), the operations percentage
                      will appear even greater.        Such is the case with the GAO
                      analysis.

                      EIPJP;NG D: &@,sitiu              Ooeration And SUooOrt Costs Of The
                      Strateaic     ModeWon        Proarm . The GAO found that DOD, Air
                      Force, and Navy cost estimates indicate         that the strategic
                      modernization     program airborne,   sea-based, and PEACEKEEPER
                      weapons systems will cost more than $475 billion          to acquire,
                      operate, and support from FY 1982 to FY 2020. The GAO noted that
                      acquisition,     operation,  and support costs for airborne systems
                      accounted for two-thirds      of the total.     The GAO further noted
                      that about 25 percent would be needed for the 21 Trident
                      submarines with D-5 Submarine launched ballistic          missiles.   The
                      GAO found that acquisition       cost estimates for the 12 Strategic
                      Modernization     systems from FY 1982 to FY 2002 exceed $200
                      billion--with     airborne systems accounting for most of the costs.
                      The GAO also found that projections         and estimated costs indicate
                      that between FY 1982 and FY 2020, operation and support costs
                      could total over $275 billion--or         about 58 percent of all the
Now on pp, 2-3, 12.   costs during FY 1982 to FY 2020. (P. 3, PP. 16-19/GAO Draft
                      Report)
                      DOD Resoom        Partially   concur.   The cost figures expressed by
                      the GAO, in the form of summary information,        are compilations      of
                      then-year dollars     over a 38 year period.     Comparison of programs
                      using these aggregated then-year dollars        can be misleading.       This
                      is true because the effects of inflation,        combined with the
                      relative  high and low points in a program's funding stream, are
                      obscured for the decision maker. It would be more appropriate              to
                      use constant-year     dollars  for this type of analysis,    particularly
                      for the aggregate summary information.

                      UDING C: Limited Vwilitv        Over Ooeration And Suooort Cost5 .
                      The GAO reported that the DODdoes not routinely      provide the
                      Congress with complete operation and support cost estimates for
                      most of the 12 strategic modernization   systems.    According to the
                      GAO, the cost and budget documents routinely    provided to the




                             Page68                                        GAO/NSIAD-90-228StrategicWeapons
                                 Appendix1
                                 CommentsFrom the Department of Defense




                          Congress, generally,         do not contain readily      usable estimates of
                          the cost to,operate         and support the strategic      modernization
                          program18 weapon systems during their life-cycles.                The GAO noted
                          that the Congress has expressed concern over long-term operation
                          and support costs and has asked the DOD to provide the cost
                          estimates on a regular basis.             The GAO explained that, in 1986,
                          the Congress directed the DODto include life-cycle                costs in each
                          new Selected Acquisition         Report submitted after January 1986.
                          The GAO found, however, that seven of the systems reviewed--
                          including     those for the B-lB, the modified B-52, the KC-135R, the
                          Trident II submarine and missile,            and the PEACEKEEPER
                          Intercontinental       Ballistic    Missile --were first    submitted before
                          January 1986 and, therefore,          did not include life-cycle       or
                          operation and support cost estimates.              The GAO also found that
                          Selected Acquisition         Reports for more recent systems--including
                          those for the B-2, the Short Range Attack Missile II, the
                          Advanced Cruise Missile,         and the Rail Garrison--usually        included
                          only limited      operation and support estimates,         which did not
                          contain all of the information           needed to fully    assess life-cycle
                          operation     and support costs.
                          The GAO also reported that an individual     system's operation and
                          support costs become less visible     to the Congress after the
                          system is fielded.     In addition, the GAO reported that the DOD
                          does not update a system's Selected Acquisition      Report once the
                          system has been deployed, and budget documents and the Five Year
                          Defense Plan routinely    provided to the Congress do not identify
                          the total operation and support cost of specific      systems.
                          The GAO reported that the Senate Appropriation             Committee has
                          asked the DODto provide system-specific            operation and support
                          cost estimates in budget submissions.            According to the GAO, the
                          Committee report on the FY 1988 Defense Authorization               Act
                          directed   that (1) each Service be able to report accurate and
                          verifiable    operation and support costs for major systems within
                          four years and (2) operation and support data for at least three
                          major systems per Service be included in budget submissions,
                          beginning with the FY 1990 budget.           The GAO found that the DOD
                          attempted to comply, but was unable to do so during the FY 1990
                          budget cycle.      The GAO concluded that congressional          concerns
                          regarding the affordability        of strategic    modernization     systems
                          can be fully    resolved only with the development of complete and
                          accurate estimates of each systems's life-cycle             operation and
                          support costs.      The GAO also concluded that such estimates will
                          not be readily     available  until the DOD can fulfill        congressional
                          directives    aimed at establishing      a uniform system for routinely
                          providing   the Congress with more complete operation and support
Now on pp. 3-4, 22, 24.   cost estimates.       (p. 3, pp. 20-22/GAO Draft Report)
                          DOD m:            Concur.   The GAO correctly   stated that the DOD
                          does not routinely    provide the Congress with complete operation
                          and support cost estimates for most of the 12 strategic
                          modernization   systems.     It should be recognized,  however, that
                          routine reporting    requirements    in the past have not included this




                                Page 69                                        GAO/NSIAD-90-226StrategicWeapons
                                                                                                              .
                                 AppendIxI
                                 CemmentaFromtheDepartmentofDefense




                          type of operation     and   support    data attributable         to specific
                          systems.

                          FINDZNG:      Goat   Estimates    of   The   Stratw.b      Modetiatb
                                          e-                .    The GAO reported that, for a
                          variety   of reasons, the actual costs of the strategic
                          modernization    program weapon systems will probably exceed the
                          projected   $475.5 billion     cost.     According to the GAO, one of the
                          reasons is that inflation        rates are probably too low. The GAO
                          explained that it used the 1.8 percent inflation            rate the DOD
                          projected   for FY 1994 and beyond. The GAO pointed out, however,
                          that the 1.8 percent is very low by historical           standards.   In
                          support of that position,        the GAO pointed out that Aircraft
                          Procurement budget accounts have always exceeded 1.8 percent and
                          actual inflation     in the Air Force operation and maintenance
                          account fluctuated       from 2.7 to 5.4 percent during the 1980s. The
                          GAO also pointed     out that the FY 1994 inflation       rate used by the
                          Congressional    Budget Office      for 1994, was 4.3 percent.

                          The GAO also observed that acquisition              cost estimates may
                          understate      the actual cost of developing and deploying the
                          eystems.       The GAO referenced its February 1989 report on the B-1B
                           (OSD Case     7747),    which found that the Air Force had incurred
                          about $31 billion         in costs-- about $3.6 billion       more than depicted
                          in the Selected Acquisition           Report--and that the Air Force
                          planned to spend an additional           $669 million     in B-1B enhancements.
                          The GAO also pointed out that the FY 1989 Selected Acquisition
                          Report cost schedules did not reflect             the use of over $750
                          million     from expired appropriations.          The GAO observed that
                          reviews of the more costly B-2 program have shown that DOD
                          acquisition       cost estimates assumed that (1) the Congress will
                          approve multi-year          procurement and at least $7.5 billion          in
                          funding for four successive years, (2) cost saving initiatives
                          will succeed, and (3) the schedule will be met, although the
                          program has made less progress than planned in key manufacturing
                          areas. The GAO observed that, due to these optimistic
                          assumptions, the B-2 acquisition            will probably cost more than the
                          $70.2 billion         DOD estimate incorporated      in the report.      The GAO
                          further     reported that other factors,         such as software support,
                          interim contractor          support, or most indirect       operation and
                          support costs, are not included in cost estimates for the B-52,
                          the B-lB, and the KC-135R, which would also understate                  cost
                          projections.          The GAO also noted that the estimates do not
                          include the cost of nuclear warheads or post-acquisition
                          enhancements.          The GAO concluded that, because of the cited
                          reasons, the cost estimates for the strategic                modernization
Now on pp. 4, 23-24       programs are probably understated.              (p. 3, pp. 22-24/GAO Draft
                          Report)
                          DOD &@QQD@~: Concur.           It should be recognized that inflation
                          rates used by the DOD for planning out-year program cost are
                          established     in conjunction    with the Office of Management and
                          Budget.     Since December     1989, the DOD has been using rates
                      Y




                                 Page70                                               GAO/NSIAD-90-226StrategicWeapona
                          Appendix I
                          CommentsFrom the Department of Defense




                   between 3.1 percent and 3.4 percent for planning beyond FY 1994.
                   This is another example of why constant year dollars should be
                   used.

                   FINDING:        Ipnpact Of Recent World Eventa . The GAO reported
                   that, at the beginning of the past decade, concern over the
                   threat posed by the Soviet Union resulted        in significant
                   increases to the U.S. defense budget and in the strategic
                   modernization      program.   The GAO observed, however, that recent
                   events in the Soviet Union and Eastern Europe suggest that
                   perceptions     of a diminished Soviet threat will lead to greater
                   efforts    in this decade to control the Federal budget deficit
                   through reduced defense spending.         The GAO noted that the
                   Congress will consider the first       defense budgets of the 1990s in
                   light of the events in Europe and will assess the affordability
                   of major defense systems.        The GAO concluded that those recent
                   events   increase the importance of the ability       of Congress to
                   assess the affordability       of the strategic  modernization  weapon
Now on pp. 2,24.   systems.      (p. 2, pp. 24-25/GAO Draft Report)
                   s:               Concur.

                   FINnING:        Proiected Costs of AWzaas? Svstem s. The GAO
                   reported that projected costs for the B-l, the B-2, the modified
                   B-52, KC-135R, the Air Launched Cruise Missile,        the Advanced
                   Cruise Missile,      and the Short Range Attack Missile II will cost
                   approximately     $315 billion.   The GAO compiled its cost projection
                   a8 follows:
                        B-1B m--The            cost to acquire, support, and operate the
                        baseline-configuration        B-1B from FY 1982 through FY 2020,
                        would be over $54 billion         ($27.4 billion for acquisition and
                        $27.4 billion      for operation and support costs).
                        B-2 Bomber--The B-2 bomber may cost more than $114 billion
                        to acquire,   operate and support through FY 2020 ($70.2
                        billion   for acquisition and $44.1 billion for operation and
                        support cost).
                                ied B-52 Boa&&p-The FY 1982-FY 2020 cost of acquiring,
                        operating,    and supporting   the modified B-52s could equal
                        $57.8 billion    ($1.2 billion    for acquisition and $56.5
                        billion    for operation and support).
                        KC-135R Tanker--The available    cost data indicate  that, from
                        FY 1982 to FY 2020, the KC-135R tanker could cost about
                        $72.6 billion   to acquire, operate, and support ($12.3
                        billion   for acquisition  and $60.4 billion  for operation and
                        support).
                                              Misu--The                 cost estimates indicated
                        that   Short Range Attack Missile          II   acquisition,  operation




                          Page 71                                            GAO/NSIAD-90-226StrategicWeapons
                              Appendix I
                              CommentsFrom the Department of Defense




                             and support could cost about $4.1 billion    through FY 2020
                             ($2.4 billion for acquisition and $1.7 billion     for operation
                             and support).
                             u--The                                     final Air Launched Cruise
                             Missile Selected Acquisition         Report indicated      that for
                             missiles     acquired after 1981, the missile would cost almost
                             $2 billion.       (The GAO noted that operational        support costs
                             were unavailable.)
                             Advanced--                      Based on data in the most recent
                             Selected Acquisition        Report, acquiring,     supporting,   and
                             operating the missile through FY 2020 could cost about $9.6
                             billion     ($6.7 billion    for acquisition     and $2.9 billion    for
                             operation     and support).      (pp. 3-4, pp. 26-5O/GAO Draft
Now on pp.3,26-51.           Report)
                       DoD:               Partially  concur.    Although the Department concurs
                       with the   overall   numbers used, the DOD does not completely concur
                       with the   methodology used to demonstrate the relative       life cycle
                       costs of   the individual    modernization    programs. See the DOD
                       response   to Finding B.

                                       oiected Cost of Intercon-           Barn . .
                       mzpL-------------
                                   The GAO reported that the strategic
                       program intercontinental   ballistic
                                                                           modernization
                                                              missile system includes             the
                       PEACEKEEPERin Minuteman Silos, the PEACEKEEPER                Rail Garrison,
                       and the Small Intercontinental        Ballistic      Missile.     According to
                       the GAO, current estimates suggested that the PEACEKEEPER                 and
                       Rail Garrison programs could cost about $38.8 billion--including
                       $12.1 billion    for operation and support--if           the Air Force keeps
                       50 PEACEKEEPERS     in operation through FY 2020. The GAO noted that
                       the Small Intercontinental      Ballistic       Missile costs were unknown,
                       pending decisions concerning configuration,              force structure,     and
                       basing.     The GAO explained the cost projections            as follows:
                             B--The            revised PEACEKEEPER  program could cost
                             $26.7 billion to acquire and $21.1 billion    to operate and
                             support the system through FY 2020.
                                                              stic M~J&J& . The Air Force
                             could not provide complete estimates of the Small
                             Intercontinental     Ballistic  Missile Program@8 acquisition     and
                             operation     and support costs, because of uncertainties
                             concerning missile quantities,       basing characteristics   and
Now on pp. 3, 52-57.         other factors.      (pp. 3-4, pp. 51-56/GAO Draft Report)
                       DoD                Partially  concur.    Although the Department concurs
                       with the   overall   numbers used, the DOD does not completely concur
                       with the   methodology used to demonstrate the relative       life cycle
                       costs of   the individual    modernization    programs. See the DOD
                       response   to Finding B.




                               Page 72                                          GAO/NSIAD-90-226Strategic Weapons
                          Appendix I
                          CommentsFromtheDepartmentofDefense




                    FIWDINO:     Embsted WE&of Tridentile
                    The GAO reported that the Navy estimated      the    total
                                                                                 And
                                                                                  life-cycle
                                                                                               .

                    cost of acquiring,    operating,    and supporting  the Trident II
                    Submarine Launched Ballistic      Missile and 21 Trident II submarines
                    will be $141 billion     between FY 1978 and FY 2032. According to
                    the GAO, of this amount, the Navy estimated that $121.8 billion
                    would be needed between FY 1982 and FY 2020. The GAO determined
                    that operation and support costs account for $70.1 billion,         or
                    almost 58 p8rCent    of the FY 1982-FY 2020 total.      The GAO provided
                    the following   explanation    of the cost projections:
                         Unt      II w--According        to the Selected Acquisition
                         Report and Navy estimates,   the missile will cost about $74.1
                         billion  to acquire, operate and support between FY 1982 and
                         FY 2020 ($35.4 billion   for acquisition and $38.8 billion  for
                         operation and support).
                         Bnt       II Suku&D8--The    estimated cost of the submarine
                         program from FY 1982-FY 2020 could be $47.7 billion      ($16.4
                         billion   for acquisition  and $31.3 billion for operation and
Nowon oo,3,50-64.        support).     (pp. 3-4, pp. 57-62/GAO Draft Report)
                    [loD               Partially  concur.    Although the Department concurs
                    with the   overall   numbers used, the DOD does not completely concur
                    with the   methodology used to demonstrate the relative       life cycle
                    costs of   the individual    modernization    programs. See the DOD
                    response   to Finding B.


                                              * * * * *


                                           RECOMMENDATIONS


                    0   NONE




                          Page73                                        GAO/NSIAD-90-226StrategicWeapons
Appendix II

Major Contributors to This Report


                        Norman Rabkin, Associate Director
National Security and   Steven Kuhta, Assistant Director
International Affairs   Pierre Toureille, Evaluator-in-Charge
Division, Washington,   ~~~Y,~f,Pn”‘~~~tor
D.C.                    Randy Holtiaus, Evaluator
                        George Taylor, Evaluator


                        Meeta Sharma, Evaluator
Los Angeles Regional
Office




(362478)                Page 74                                 GAO/NSIAD-90-226Strategic Weapons
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