oversight

Army Acquisition: Longbow Hellfire Missile Procurement Quantities Significantly Overstated

Published by the Government Accountability Office on 1997-05-14.

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

                  United States General Accounting Office

GAO               Report to Congressional Committees




May 1997
                  ARMY ACQUISITION
                  Longbow Hellfire
                  Missile Procurement
                  Quantities Significantly
                  Overstated




GAO/NSIAD-97-93
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-276071

             May 14, 1997

             Congressional Committees

             In response to congressional concerns about the increasing cost of
             weapon systems entering full-rate production, we initiated a review of the
             Longbow Hellfire missile to assess its acquisition strategy and associated
             costs. Specifically, our objectives were to determine if (1) the Army had
             adequately justified the requirement and quantities of the missile and
             (2) the missile had successfully demonstrated its requirements during
             initial operational testing and evaluation (IOT&E). We conducted this
             review under our basic legislative responsibilities and are addressing this
             report to you because the matters discussed in it fall within your
             committees’ jurisdiction.


             Longbow Hellfire is an air-to-ground missile designed to be fired from a
Background   modified AH-64D Apache helicopter. The Army plans to convert all of its
             758 Apache helicopters so that they can carry a mix of Longbow Hellfire
             and Hellfire II missiles. Both Longbow Hellfire and Hellfire II missiles are
             complementary and can be employed singly or as a mixed load on the
             Apache. Longbow Hellfire is to receive targeting information from a fire
             control radar mounted on the modified Apache helicopters. However, only
             227 of the 758 helicopters are expected to be equipped with the fire
             control radar. Targeting information will be digitally transmitted from
             these helicopters to those without the fire control radar.

             The Army’s current acquisition strategy for the Longbow Hellfire missile is
             contained in its December 1, 1994, Longbow Hellfire Cost-Reduction
             Program plan. This strategy was developed in response to the Under
             Secretary of Defense’s November 16, 1994, Acquisition Decision
             Memorandum, which directed program cost-reduction efforts. The
             strategy calls for a reduction in the length of the 13,311 Longbow Hellfire
             missile procurement program from 10 to 8 years in an attempt to reduce
             program costs by 25 percent or more. The Army plans to accelerate the
             production schedule, increase production rates, award a multiyear
             contract, and make numerous missile hardware and process
             improvements. As a result of this strategy, the Army estimates it can
             reduce unit costs from $234,000 to $169,000.

             Since the Cost-Reduction Program plan was implemented, the Army
             reduced the quantity of missiles from 13,311 to 12,722 based on




             Page 1                                        GAO/NSIAD-97-93 Army Acquisition
                                       B-276071




                                       across-the-board funding reductions. Program officials stated that the
                                       Cost-Reduction Program plan will not be adversely affected by this
                                       reduction. According to the Office of the Secretary of Defense, Program
                                       Analysis and Evaluation (OSD PA&E) data, the annual full-production rates
                                       will be around 1,900 a year instead of the originally planned 2,200.

                                       The Longbow Hellfire missile is currently in its low-rate initial production
                                       phase. The Army plans to award a full-rate production contract in
                                       November 1997 and seek congressional approval for a multiyear contract
                                       in fiscal year 1999. According to 10 U.S.C. 2306b, a military service can
                                       award multiyear contracts for the purchase of weapon systems if certain
                                       criteria are met. One criterion is that the minimum need for the weapon
                                       system to be purchased is expected to remain substantially unchanged
                                       during the contract period in terms of production rate, procurement rate,
                                       and total quantities.


                                       The Apache Longbow weapon system, which includes the Longbow
Results in Brief                       Hellfire missile, completed IOT&E in March 1995. The tests concluded that
                                       the system was operationally effective and suitable. However, the Army’s
                                       current Longbow Hellfire missile requirement of 12,722 may be overstated
                                       by over 8,300 missiles. The Army made computational errors and a
                                       questionable assumption in calculating missile requirements that resulted
                                       in a potential overstatement of 7,145 missiles. In addition, test results
                                       indicate that the missile quantity could be reduced by another 1,184
                                       missiles. Moreover, significant cost reductions can be achieved with lower
                                       missile quantities. While cost estimates for an 8,300 missile quantity
                                       reduction are not yet available, OSD estimates that up to $500 million in
                                       program cost savings can be achieved by reducing quantities by
                                       approximately 4,000 units.

Table 1: Summary of Longbow Hellfire
Requirement Issues                                                                                              Number of
                                                                                                                  missiles
                                       Current Army requirement                                                     12,722
                                       Less: computational errors and questionable assumption                        (7,145)
                                       Less: test problems                                                           (1,184)
                                       Alternative requirement                                                       4,393

                                       The Army’s method of computing the quantities contains three critical
                                       errors. The Army used an outdated helicopter carrying capability of
                                       16 missiles instead of the current 12, double counted missiles when




                                       Page 2                                              GAO/NSIAD-97-93 Army Acquisition
                         B-276071




                         figuring the residual readiness portion of the requirement, and used an
                         unsubstantiated mix ratio between Longbow Hellfire and Hellfire II
                         missiles. Correcting these mistakes would potentially reduce the current
                         12,722 missile requirement for Longbow Hellfire missiles by 7,145 missiles.

                         In addition, the Army Material System Analysis Activity’s independent
                         evaluation of the Apache Longbow weapon system disclosed that the
                         Apache Longbow system’s weight needs to be reduced by almost
                         600 pounds to achieve its vertical rate of climb specification. According to
                         Army data, the system’s current demonstrated capability is calculated
                         using 8 missiles instead of 12. If the Army lowers its missile carrying
                         capability to 8 to meet the Apache Longbow system weight limitation, this
                         would further reduce the missile requirement by 1,184.


                         According to OSD PA&E and our calculations, the current Longbow Hellfire
Current Longbow          missile procurement quantity of 12,722 missiles could be overstated by
Missile Quantities Are   7,145 missiles. Our work shows that the current Longbow Hellfire missile
Significantly            requirement contained an outdated helicopter missile-carrying capability
                         and double counted missiles. In addition, the Army used an
Overstated               unsubstantiated higher ratio of Longbow Hellfire to Hellfire II missiles
                         than previously used when determining the appropriate mix between these
                         complementary systems.

                         Department of Defense (DOD) instruction 4100.41 establishes the
                         capabilities based munitions requirement process as the method DOD and
                         the military departments are to use to compute requirements. According to
                         officials in the Office of the Deputy Chief of Staff for Operations and Plans,
                         the capabilities based munitions requirement process was used to
                         determine the requirement for both Longbow Hellfire and Hellfire II. The
                         Army then applied a ratio to the total combined requirement to determine
                         the appropriate number of each type missile.

                         According to data supplied by the Army, the combined requirement for
                         Hellfire II and Longbow Hellfire missiles for use on the AH-64D Apache as
                         of November 1996 was just over 19,700 missiles, excluding training and
                         testing requirements.1 Our review of this data showed that the Army used
                         a helicopter carrying capability of 16 missiles instead of the current 12 and
                         double counted missiles when it calculated the residual readiness element
                         of the requirement. The residual readiness requirement is the munitions

                         1
                          The total Hellfire II missile requirement is greater than the Longbow missile requirement because in
                         addition to being launched from the Apache, it is also launched from Army Kiowa Warrior and Marine
                         Corps Cobra helicopters. The Army is to finish procuring Hellfire II missiles in fiscal year 1997.



                         Page 3                                                        GAO/NSIAD-97-93 Army Acquisition
B-276071




necessary to provide a combat capability beyond that required for the two
major regional contingencies. We determined that adjusting for these
corrections would reduce the combined total requirement for both
missiles to 11,153.

The Army representative who is responsible for developing munition
requirements confirmed that our adjustments were appropriate. He stated
that the Army’s current requirement was based on a helicopter carrying
capability of 16 missiles and that double counting did occur in the residual
readiness calculation. He explained that the double counting was caused
by the Army not applying the missiles designated as combat supply toward
its residual readiness calculation. Forty-three days of combat supply is
included in requirements to give operational flexibility during a conflict.
According to the residual readiness definition, these missiles should be
used to offset the residual readiness requirement. Failure to count the
supply missiles in the Army’s residual readiness calculation doubles this
quantity. He also stated that additional changes need to be made in how
residual readiness is calculated because expected aircraft attrition was not
factored in and it should be. He did not have the aircraft attrition numbers
available for us to calculate the impact this correction would have on the
requirement. However, he agreed this would further lower the recalculated
requirement of 11,153.

To determine the Longbow Hellfire and Hellfire II individual requirements,
the Army applied a ratio factor to the total requirement. The Army used a
three-to-one mix of Longbow Hellfire to Hellfire II missiles in determining
the appropriate requirement for each weapon. However, according to
agency officials, up until last year, the Army had used a one-to-one ratio to
calculate the requirement. Army and DOD representatives stated that there
is no support to justify either ratio and could offer no explanations for why
they changed the ratio. According to the Army officials, they used their
best judgment to determine the appropriate mix.

While there is no justification for either ratio, preliminary results from the
ongoing Deep Attack Weapons Mix study suggest that a one-to-one ratio
may be more appropriate than Army’s current three-to-one ratio. In
response to our 1995 report that raised questions concerning the number
of missiles required,2 DOD stated that the calculations were made prior to
the capabilities based munitions requirement process being included in the
Defense Planning Guidance and agreed to review the requirement in

2
  Longbow Apache Helicopter: System Procurement Issues Need to Be Resolved (GAO/NSIAD-95-159,
Aug. 24, 1995).



Page 4                                                    GAO/NSIAD-97-93 Army Acquisition
                        B-276071




                        accordance with direction from the Secretary of Defense. Army officials
                        confirmed that the requirement is being reviewed. However, one study that
                        may change the requirements—the Deep Attack Weapons Mix study—is
                        not yet complete. Army and DOD representatives told us that preliminary
                        study results favor the use of the Hellfire II over the Longbow Hellfire.
                        These preliminary results suggest that the one-to-one ratio is more
                        appropriate than the three-to-one ratio. Applying the one-to-one ratio to
                        the recalculated combined requirement of 11,153 missiles for use on
                        Apache helicopters would result in a 5,577 Longbow Hellfire requirement
                        and a 5,577 Hellfire II requirement. Therefore, the current Longbow
                        Hellfire requirement of 12,722 could be reduced by 7,145 missiles.

                        In July 1996, OSD PA&E took an official position that the current Longbow
                        Hellfire missile requirement should not exceed 8,880 missiles. The
                        OSD PA&E official responsible for this analysis agreed with our calculation
                        of a combined Hellfire requirement of 11,153 missiles. The 8,880
                        recommended quantity would still give the Army the three-to-one mix it
                        desires using the newly recalculated total requirement. According to this
                        official, 8,880 Longbow Hellfire missiles are more than adequate for Army
                        needs. He stated that his office was not willing to take a position on the
                        mix ratio question since there was no support for either mix ratio figure.
                        He stated that OSD PA&E’s bottom line was to recommend a 30-percent cut
                        in the Longbow Hellfire missile program quantity.


                        Operational testing results and an Army study raise issues that should
Test Results and Army   further reduce the number of Longbow Hellfire missiles that need to be
Study Show Potential    bought. Although the Longbow Apache equipped with the fire control
Exists for Further      radar successfully demonstrated its effectiveness and suitability in
                        operational testing, the tests raised serious concerns regarding the
Quantity Reductions     effectiveness of Longbow Hellfire missiles on Apaches without the fire
                        control radar. Current Army plans call for each Apache company to
                        receive three fire control radar helicopters and five non-fire control radar
                        helicopters. The aircraft with radars are to locate and classify targets, then
                        digitally hand over some of the targets to the non-fire control radar
                        helicopters for engagement. According to the Director of Operational Test
                        and Evaluation’s October 1995 report, the handoff procedure had
                        significant problems during the test. Most of the crews in the radar aircraft
                        chose not to hand off targets because the one-at-a-time handoff process
                        was time-consuming and unreliable. Consequently, the non-fire control
                        helicopters did not expend their missiles. As a result, the report found a




                        Page 5                                         GAO/NSIAD-97-93 Army Acquisition
                      B-276071




                      lethality difference between fire control and non-fire control radar
                      helicopters that was so great that the report recommended the Army
                      review its helicopter mix. These hand-off deficiencies raise questions
                      about the rationale for buying Longbow Hellfire missiles for use on
                      non-fire control radar helicopters.

                      The Army Material System Analysis Activity’s (AMSAA) independent
                      evaluation of the Longbow Apache helicopter weapon system revealed
                      that neither version of the airframe is meeting its vertical rate of climb
                      requirement. The report states that to meet this requirement, weight needs
                      to be reduced further. For example, AMSAA estimates that the Longbow
                      Apache without the fire-control radar would need to lose almost
                      600 pounds to achieve its goals. In addition, the December 1995 Selected
                      Acquisition Report for the Longbow Apache system reported that the
                      system’s demonstrated capability was only eight missiles. If the Army has
                      to reduce requirements from 12 to 8 missiles to reduce weight, the
                      combined total Longbow Hellfire and Hellfire II missile requirement would
                      decline from the recalculated 11,153 missiles to 8,785. Using the
                      one-to-one ratio between the 2 missiles, the Longbow Hellfire missile
                      requirement would be lowered by an additional 1,184 missiles to 4,393; a
                      reduction of over 8,300 missiles from the existing 12,722 requirement.

                      OSD PA&E  estimates that procuring its recommended reduced quantity of
Current Acquisition   8,880 missiles will generate possible program savings ranging from $100 to
Plans Overstate       $500 million (see table 1.1). The variability in savings results from using
Program Costs         different missile production rates. The most favorable cost-reduction
                      scenario assumes an annual multiyear production rate of 1,400 missiles,
                      only 500 fewer than currently planned. Although the average missile unit
                      cost would increase from $152,000 to $176,000, total program costs would
                      decrease from $2.1 billion to $1.6 billion, according to OSD PA&E’s estimates.




                      Page 6                                         GAO/NSIAD-97-93 Army Acquisition
                                          B-276071




Table 2: Alternative Longbow Hellfire Program and Unit Cost Estimates
                                                                                Total cost            Savings          Unit cost
                                                                               (billions of       (millions of   (thousands of
                                            Production                          then-year           then-year        fiscal year
Total buy                                 rate per year      Buy period            dollars)           dollars)    1997 dollars)
Current Army requirement of 12,722                 1,900     Fiscal years              2.1                  0               152
                                                             1996-2003
PA&E’s recommended quantity of 8,880               1,400     Fiscal years              1.6                500               176
                                                             1996-2003
PA&E’s recommended quantity of 8,880                 700     Fiscal years              2.0                100               208
                                                             1996-2008
                                          Source: Data provided by OSD PA&E.



                                          The Longbow Program Office cost analyst stated he was unable to provide
                                          a revised cost estimate for procuring 8,880 missiles or any significant
                                          quantity revision. He stated that if the program quantity is reduced to 8,880
                                          or below, the Cost-Reduction Program plan would have to be totally
                                          revised and many of the agreements made with the contractor to reduce
                                          costs would have to be renegotiated.


                                          We recommend that the Secretary of Defense direct the Secretary of the
Recommendations                           Army to (1) reduce Longbow Hellfire missile procurement requirements to
                                          reflect the current information on the number of missiles that the Apache
                                          can carry, the correct residual readiness computational procedures, and
                                          the appropriate Hellfire II to Longbow Hellfire mix ratio and (2) prepare a
                                          new procurement strategy that reflects the reduced requirement and
                                          recomputed expected cost.


                                          In commenting on a draft of this report, DOD partially concurred and
Agency Comments                           acknowledged that we had highlighted significant issues regarding (1) how
                                          the current Longbow Hellfire and Hellfire II requirements were
                                          determined, (2) the Apache helicopter’s problem in achieving its vertical
                                          rate of climb requirement, and (3) the time-consuming and unreliable
                                          handoff process between radar and non-radar helicopters. Concerning our
                                          recommendations, DOD commented that it would consider an updated
                                          acquisition strategy for the Longbow Hellfire and the Hellfire II missiles
                                          after the receipt and analysis of the results of the ongoing joint Deep
                                          Attack/Weapons Mix study and the Quadrennial Defense Review Study.
                                          DOD indicated that it does not expect to finalize its position on Hellfire




                                          Page 7                                              GAO/NSIAD-97-93 Army Acquisition
                B-276071




                missile quantities until the fiscal year 1999 budget submission. The DOD
                response is included in appendix I.


                With the questions we have raised on the current Longbow Hellfire
Matters for     requirement and the uncertain impact of the Weapons Mix study and the
Congressional   Quadrennial Defense Review, every effort should be made to avoid
Consideration   committing to the production of an excessive quantity of Longbow Hellfire
                missiles. Congress may wish to consider limiting the fiscal year 1998
                procurement quantities request to fiscal year 1997 production levels until
                the Secretary of the Army recalculates the required quantities of Longbow
                Hellfire and Hellfire II missiles and updates the acquisition strategy for
                these missiles.


                To determine if the Army had adequately justified its Longbow Hellfire
Scope and       missile requirement and quantities, we reviewed the Army’s
Methodology     Cost-Reduction Plan and the models used to determine the quantities of
                missiles with officials in the Army’s Air to Ground Project Office, Redstone
                Arsenal, Alabama. We also obtained information on the models and data
                used by the Army Office of the Deputy Chief of Staff for Operations and
                Plans, Washington, D. C., for calculating the quantities of missile. In
                addition, we obtained models and data from the Office of the Secretary of
                Defense, Program Analysis and Evaluation Office.

                To determine if the Army had successfully demonstrated the Longbow
                Hellfire missile’s requirements during IOT&E, we reviewed operational test
                reports and Army studies. We discussed these documents with officials in
                the Longbow Missile Program Office, the Longbow Radar Project Office in
                St. Louis, Missouri, and with representatives from the Office of the
                Director, Operational Test and Evaluation, Washington, D. C.

                To determine if the missile was on schedule to achieve its planned cost
                reduction, we reviewed the Army’s Cost Reduction Plan, current
                estimates, and projected costs for reduced quantities with officials in the
                Army’s Air to Ground Project Office, Redstone Arsenal, Alabama; the
                Army’s Office of the Deputy Chief of Staff for Operations and Plans,
                Washington, D. C.; and the Office of the Secretary of Defense, Program
                Analysis and Evaluation Office.

                We conducted our review from October 1996 to February 1997 in
                accordance with generally accepted government auditing standards.



                Page 8                                         GAO/NSIAD-97-93 Army Acquisition
B-276071




We are sending copies of this report to the Secretaries of Defense and the
Army and the Director of the Office of Management and Budget. Copies
will also be made available to others upon request.

If you or your staff have questions concerning this report, please contact
me at (202) 512-4841. The major contributors to this report were Lee
Edwards, Laura Durland, and John Randall.




Louis J. Rodrigues
Director, Defense Acquisitions Issues




Page 9                                        GAO/NSIAD-97-93 Army Acquisition
B-276071




List of Congressional Committees

The Honorable Strom Thurmond
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel K. Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Floyd Spence
Chairman
The Honorable Ronald V. Dellums
Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable C. W. Bill Young
Chairman
The Honorable John P. Murtha
Ranking Minority Member
Subcommittee on National Security
Committee on Appropriations
House of Representatives




Page 10                             GAO/NSIAD-97-93 Army Acquisition
Page 11   GAO/NSIAD-97-93 Army Acquisition
Appendix I

Comments From the Department of Defense




             Page 12          GAO/NSIAD-97-93 Army Acquisition
           Appendix I
           Comments From the Department of Defense




(707203)   Page 13                                   GAO/NSIAD-97-93 Army Acquisition
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