oversight

Acquisition Reform: Effect on Weapon System Funding

Published by the Government Accountability Office on 1997-10-29.

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

                  United States General Accounting Office

GAO               Report to the Secretary of Defense




October 1997
                  ACQUISITION
                  REFORM
                  Effect On Weapon
                  System Funding




GAO/NSIAD-98-31
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-272651

             October 29, 1997

             The Honorable William Cohen
             The Secretary of Defense

             Dear Mr. Secretary:

             Over the last several years, the Department of Defense (DOD) has placed
             priority attention on reforming its acquisition processes and has
             emphasized that savings resulting from acquisition reforms are needed to
             help fund weapons modernization. Responding to a request by the Under
             Secretary of Defense for Acquisition and Technology, the military services
             estimated acquisition reform cost reductions on 63 major weapon
             programs. We have reviewed the services’ estimates to determine the
             extent to which the reported cost reductions from acquisition reform will
             provide funds from approved budgets to support modernization.


             In March 1996, the Under Secretary of Defense for Acquisition and
Background   Technology directed DOD service acquisition executives and the Director,
             Defense Logistics Agency, to provide consistent data supporting their
             acquisition reform cost reduction estimates. According to DOD, the services
             generally used the 1995 President’s budget as the baseline for estimating
             cost reductions because it reflected the financial and program content of
             weapon programs in mid-1994, before DOD’s current acquisition reform
             efforts were implemented. The services compared the 1995 President’s
             budget to the 1997 President’s budget to estimate cost reductions from
             acquisition reform. They also estimated the cost reductions relating to
             current acquisition reform initiatives beyond fiscal year 2002.

             As we discussed in our recent high-risk report1 on defense weapon
             systems acquisition, the ultimate effectiveness of DOD’s current initiatives
             to reduce the cost and improve the outcomes of its acquisition processes
             cannot yet be fully assessed because they are in various stages of
             implementation. DOD is pursuing a number of positive initiatives that
             could, over time, improve the effectiveness of its acquisition processes.
             However, it may take several years of continued implementation before
             tangible results can be documented and sustained.




             1
              High-Risk Series: Defense Weapon Systems Acquisition (GAO/HR-97-6, Feb. 1997).



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                       While we continue to support DOD’s effort to reform its acquisition
Results in Brief       processes, our review raises concerns about the extent to which cost
                       reductions from acquisition reform that the services have reported will be
                       available to fund DOD’s modernization program in the near term.

                       Of the $29 billion in estimated cost reductions reported by the services,
                       our analysis shows that only $7.2 billion, or 25 percent of the reductions,
                       are expected to occur between 1995-2002 from an approved budget. Most
                       of the remaining $21.8 billion reported by the services are reductions that
                       either occurred before 1995 or are anticipated to occur beyond fiscal
                       year 2002. A significant portion of the $7.2 billion had been used to meet
                       needs within the program generating the reduction.

                       Our review also indicates that acquisition reform cost reductions may be
                       offset by cost increases elsewhere in the programs. Our analysis of 33 of
                       the 63 programs reporting acquisition reform cost reductions shows that
                       after taking into account these reductions and after adjusting for inflation
                       and quantities of systems being bought, total acquisition costs for these
                       programs increased an average of 2 percent. This suggests that the
                       estimated cost reductions from acquisition reform are being offset by cost
                       increases elsewhere in the programs or reinvested within the programs.
                       Consequently, few funds will be available for other DOD acquisition
                       programs. We excluded classified programs and others that could not be
                       fairly compared to the baseline from our analysis.


                       The services estimated that acquisition reform reduced the cost of
One Quarter of DOD’s   acquiring major weapon systems by about $29 billion. However, our
Estimated Cost         review indicated that only about one quarter of that amount ($7.2 billion)
Reductions Reflect     represents reductions from approved budgets and is expected to occur
                       between fiscal year 1995 and 2002. About $5.6 billion represents
Reductions From        unbudgeted cost reductions based on actions occurring in years before the
Approved Budgets       baseline 1995 President’s budget and about $13.9 billion is expected to
                       occur after fiscal year 2002—the last year covered by the President’s 1997
                       budget. The remaining $2.3 billion of the $9.5 billion in cost reductions of
                       the services’ estimates occurring between fiscal year 1995 and 2002 were
                       unbudgeted cost reductions. (See fig. 1.)




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Figure 1: DOD’s Estimated Cost
Reductions From Acquisition Reform
                                     Dollars in billions

                                                  1995
                                                  Baseline                        2002




                                              $5.6



                                                                    $9.5


                                                                    $7.2       $2.3

                                                                                                         $13.9




                                              Reductions from approved budgets

                                              Unbudgeted reductions




                                     DOD reported cost reductions from acquisition reform for 63 of its major
                                     weapon programs. Ten of these programs account for about 65 percent of
                                     the estimated $29-billion reduction in the cost of developing and procuring
                                     these programs. One program, the Air Force’s C-17 program, accounts for
                                     $5.4 billion, or about 19 percent of the $29 billion. In February 1997, we
                                     reported that C-17 program costs had only decreased by $174 million.2
                                     Although the C-17 program production costs decreased, these savings
                                     were offset by increases for research and development, aircraft
                                     modifications, military construction, and field support. Figure 2 shows
                                     DOD’s estimated cost reductions due to acquisition reform for the 10
                                     programs claiming the largest reductions. (See app. I for a description of



                                     2
                                      Military Airlift: Options Exist for Meeting Requirements While Acquiring Fewer C-17s
                                     (GAO/NSIAD-97-38, Feb. 19, 1997).



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                                                     each of these 10 weapon programs and the types of acquisition reform
                                                     initiatives DOD says it is implementing to achieve the cost reductions.)



Figure 2: Weapon Programs Claiming the Largest Acquisition Reform Cost Reductions
 Dollars in billions


             C-17                                                                                           5.4

        F/A-18E/F                                                             3

            JDAM                                                         2.9

           Javelin                             1.4

          DDG-51                         1.2

             F-22                       1.1

  NAVSTAR GPS                       1

 Longbow Apache                     1

          LPD-17                    1

            JTIDS         0.7

                     0          1                         2               3                 4        5               6

                                              Reductions from a budget   Unbudgeted reductions




                                                     Page 4                                       GAO/NSIAD-98-31 Acquisition Reform
                      B-272651




                      Among the services, the Air Force is claiming the largest amount of total
                      acquisition reform cost reductions, estimated at $14.9 billion, or
                      51.6 percent. The Navy follows with about $8.9 billion (30.6 percent), and
                      the Army with about $5.2 billion (17.8 percent).

                      Using estimates contained in the December 1993 and December 1995
Estimated Cost of     Selected Acquisition Reports (SAR), we analyzed the costs for 33 of 63
Major Weapon          weapon programs reporting acquisition cost reductions to determine the
Programs Increased    effect of acquisition reform on program cost estimates. The 33 programs
                      account for about $17.7 billion of the $29 billion in acquisition reform cost
Despite Acquisition   reductions reported by the services (see app. III). Our analysis shows that
Reform                the cost of the programs increased, on average, by about 2 percent, after
                      adjusting for quantity changes and inflation. Among the services, the Army
                      showed a 0.5-percent decrease, the Navy an increase of 1.4 percent, and
                      the Air Force showed an increase of 3.2 percent.

                      Twenty-three of the 33 programs experienced an average cost increase of
                      3.1 percent, with the increase ranging from 0.5 to 66 percent. Cost
                      increases for these programs ranged from $19.9 million to $2.2 billion and
                      averaged about $478 million (fiscal year 1997 dollars). These increases
                      suggest that acquisition reform cost reductions for these programs have
                      been offset by cost increases or by reinvestments within the programs.
                      Ten of the programs we analyzed experienced cost decreases ranging from
                      0.3 to 19 percent, with an average cost decrease of 4 percent. The cost
                      reductions for these programs ranged from $15.3 million to $716.1 million
                      with an average decrease of $293.4 million (fiscal year 1997 dollars).


                      In commenting on a draft of this report, DOD generally concurred with the
Agency Comments       comments and views presented in the report and stated that DOD shares
and Our Evaluation    our concern about the extent to which acquisition reform cost reductions
                      would be available to fund modernization. DOD’s comments are presented
                      in their entirety in appendix IV.


                      We analyzed the services’ estimates of cost reductions attributed to
Scope and             acquisition reform for development and procurement of their major
Methodology           weapon programs.3 To determine if acquisition reform initiatives

                      3
                       For the purposes of this report, we define cost reductions as reductions to the costs of developing and
                      procuring weapon systems. We exclude reductions claimed in operations and maintenance (O&M)
                      costs since most programs did not report O&M cost reductions. Of the total of about $16 billion in
                      O&M cost reductions that was reported, about $14 billion was claimed by the LPD-17 program, which
                      estimated that the reductions would occur after fiscal year 2002.



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B-272651




generated additional funds for modernization, we compared the cost
estimates of 33 of the 63 programs reporting acquisition reform cost
reductions to determine whether the costs had increased or decreased.
Initially, we included all major weapon systems that reported acquisition
reform cost reductions. However, we then eliminated 30 programs that
(1) had classified cost information, (2) did not have a SAR that we could
use as a baseline, (3) experienced a significant program restructuring,
and/or (4) did not report production costs for the system.

Our methodology was adapted from one previously used by our office and
the Rand Corporation to evaluate the effect of acquisition reform on
weapon system costs.4 For the 33 programs selected for analysis, we used
current program estimates from the December 1993 SAR as a baseline and
compared them to the current estimate of the December 1995 SAR. These
two periods were selected because they coincided with the time periods
DOD used to estimate cost reductions from acquisition reform. The
programs were adjusted for quantity changes and the effects of inflation
because such changes are often caused by forces outside the program. We
normalized the quantity differences between the 1993 and 1995 SARs by
adjusting the total costs reported in the December 1995 SAR to reflect the
1993 SAR baseline quantity. To normalize the quantity, we subtracted the
cost changes attributed to variances in program quantities. This is one of
three common techniques used to normalize quantity.5

To determine any cost differences between the December 1993 and 1995
SAR, we calculated the cost variance for each system by comparing the
adjusted current estimate of the December 1995 SAR total program cost to
the current estimate of the December 1993 SAR. All of the calculations were
performed using base year dollars. In some cases, the base year dollar
from the December 1993 SAR differed from the December 1995 SAR. In
those cases, we used the same inflator the program used to inflate the
December 1993 SAR information. If the SAR did not contain information on
the inflation factor that was used, we used the DOD deflators published by
the Office of the Under Secretary of Defense (Comptroller).




4
 Acquisition: DOD’s Defense Acquisition Improvement Program: A Status Report (GAO/NSIAD-86-148,
July 23, 1986) and Edmund Dews and Giles K. Smith, Acquisition Policy Effectiveness: Department of
Defense Experience in the 1970s, Rand Corp. (R2516-DR&E, Oct. 1979).
5
 Paul G. Hough, Pitfalls in Calculating Cost Growth from Selected Acquisition Reports Rand
(N-3136-AF, 1992).



Page 6                                                     GAO/NSIAD-98-31 Acquisition Reform
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    The results using this methodology have three important limitations:

•   First, the results of our analysis cannot be exclusively linked to the
    acquisition reform initiatives because of the effect of other factors such as
    prior improvement programs, program stretch-outs, and other unknown
    factors.
•   Second, the acquisition reform initiatives have only been in use for a few
    years. The full cost impact of acquisition reform will likely not be known
    for several years until programs developed and produced under the new
    acquisition process are delivered.
•   Third, the effect of reinvesting the cost reductions in programs cannot be
    separated from other program cost changes.

    The National Defense Authorization Act for Fiscal Year 1997 required DOD
    to conduct a Quadrennial Defense Review. As part of the review, DOD
    assessed a wide range of issues, including the defense strategy of the
    United States and the force structure required to support that strategy. As
    a result, DOD may reduce the quantities being bought of some weapon
    programs. Our analysis does not take into account the effect of any
    restructuring resulting from the Quadrennial Defense Review.

    We reviewed reports from the Congressional Research Service and DOD, as
    well as our own prior reports. We also interviewed Office of the Secretary
    of Defense, Navy, Army, and Air Force officials responsible for developing
    and implementing acquisition reform.

    This review was conducted in accordance with generally accepted
    government auditing standards.

    We are sending copies of this report to appropriate congressional
    committees; the Secretaries of the Army, the Navy, and the Air Force; and
    the Director of the Office of Management and Budget. Copies will be made
    available to others upon request.




    Page 7                                       GAO/NSIAD-98-31 Acquisition Reform
B-272651




If you or your staff have any questions concerning this report, please
contact me on (202) 512-4841. Major contributors to this report were
Charles W. Thompson, Assistant Director; Jose A. Ramos,
Evaluator-in-Charge; and Mary Offerdahl, Senior Evaluator.

Sincerely yours,




David E. Cooper
Associate Director
Defense Acquisitions Issues




Page 8                                       GAO/NSIAD-98-31 Acquisition Reform
Page 9   GAO/NSIAD-98-31 Acquisition Reform
Contents



Letter                                                                                          1


Appendix I                                                                                     12
                       C-17 Globemaster III                                                    12
Weapon Programs        F/A-18 E/F Naval Strike Fighter                                         12
Claiming the Largest   Joint Direct Attack Munition                                            13
                       Javelin Advanced Antitank Weapon System-Medium                          14
Acquisition Reform     DDG-51 Guided Missile Destroyer                                         14
Cost Reductions        F-22 Advanced Tactical Fighter                                          15
                       NAVSTAR GPS                                                             15
                       Longbow Apache                                                          16
                       LPD-17 Amphibious Transport Dock Ship                                   16
                       Joint Tactical Information Distribution System                          17

Appendix II                                                                                    18

Department of
Defense Estimates of
Acquisition Reform
Cost Reductions by
Program
Appendix III                                                                                   21

List of Weapon
Systems We Reviewed
Appendix IV                                                                                    23

Comments From the
Department of
Defense
Figures                Figure 1: DOD’s Estimated Cost Reductions From Acquisition               3
                         Reform
                       Figure 2: Weapon Programs Claiming the Largest Acquisition               4
                         Reform Cost Reductions




                       Page 10                                  GAO/NSIAD-98-31 Acquisition Reform
Contents




Abbreviations

DOD        Department of Defense
GPS        Global Positioning System
JTIDS      Joint Tactical Information Distribution System
JDAM       Joint Direct Attack Munition
O&M        operations and maintenance
SAR        Selected Acquisition Reports


Page 11                                    GAO/NSIAD-98-31 Acquisition Reform
Appendix I

Weapon Programs Claiming the Largest
Acquisition Reform Cost Reductions

                       The C-17 is a wide body, air refuelable, four engine, turbofan aircraft that
C-17 Globemaster III   is the replacement for the C-141 transport, and it will complement the
                       larger, but less maneuverable, C-5 aircraft. The Air Force’s C-17 program
                       estimated cost reductions of about $5.4 billion due to acquisition reform
                       cost reductions. This amount was arrived at by adding the $2.7 billion in
                       savings resulting from a Should Cost review, $1.7 billion in savings
                       projected from accelerating the production schedule, and $1 billion in
                       savings due to using a multiyear procurement strategy.1 The Air Force
                       attributed these reductions to the use of acquisition streamlining, best
                       practices, and cost reduction initiatives. Specifically, according to the Air
                       Force, it used integrated product teams and reduced specifications,
                       standards, and contract data requirements. Also, the team identified
                       reductions in direct labor, overhead, and work to offload from the prime
                       contractor to suppliers.

                       In February 1997, we reported that despite the cost reduction initiatives
                       taken by the government and the contractor, the total estimated program
                       cost for the C-17 had only decreased by about $174 million from the
                       $43 billion January 1994 Air Force cost estimate.2 C-17 production cost
                       savings were offset by increased cost estimates for research and
                       development, aircraft modifications, military construction, and field
                       support. The contract prices for the last 50 aircraft could increase by an
                       additional $1 billion because of the ceiling prices contained in the
                       multiyear production contract.


                       The Navy’s F/A-18 E/F program follows prior unsuccessful attempts to
F/A-18 E/F Naval       modernize the Navy’s tactical aviation fleet. The program originated from
Strike Fighter         the 1988 Hornet 2000 study conducted by the Naval Air Systems Command
                       and McDonnell Douglas Aerospace Corporation and was approved as a
                       major modification program in 1992. This aircraft is a high-performance
                       twin-engine, multimission aircraft that provides flight escort, interdiction,
                       fleet air defense, close-air support, and tactical reconnaissance. According
                       to the Navy, the estimated total program cost will be $89.2 billion,
                       $5.8 billion in development costs and $83.4 billion in procurement costs
                       for 1,000 aircraft.3

                       1
                       In 1994, the Air Force performed a should cost review to promote economies and efficiencies that
                       would make the C-17 program more affordable. This review covered the remaining 88 aircraft buy.
                       2
                       For additional information on the C-17 program, see Military Airlift: Options Exist for Meeting
                       Requirements While Acquiring Fewer C-17s (GAO/NSIAD-97-38, Feb. 19, 1997).
                       3
                       For additional information on the F/A-18 E/F program, see Navy Aviation: F/A-18E/F Will Provide
                       Marginal Operational Improvement At High Cost (GAO/NSIAD-96-98, June 18, 1996).



                       Page 12                                                      GAO/NSIAD-98-31 Acquisition Reform
                      Appendix I
                      Weapon Programs Claiming the Largest
                      Acquisition Reform Cost Reductions




                      According to the Navy, the program avoided about $3 billion in costs prior
                      to fiscal year 1995. It attributes these cost avoidances to innovations and
                      changes in the relationship with the contractors that led to a design that
                      could affordably meet operational mission and inventory requirements. A
                      multidisciplinary government-industry integrated product team was used
                      throughout the engineering and manufacturing design process. Concurrent
                      design and manufacturing implementation efforts, according to the Navy,
                      eliminated serial work and multiple design iterations. In addition,
                      investment in high speed machining, laser alignment tools, and use of
                      modern tooling techniques contributed to achieving the affordability goal,
                      according to the Navy.


                      The Joint Direct Attack Munition program (JDAM) is a joint Air Force and
Joint Direct Attack   Navy program to provide current fighter and bomber aircraft the capability
Munition              to accurately and precisely attack fixed, or relocatable, land and maritime
                      targets under adverse weather conditions from medium and high altitudes.
                      JDAM is a tail guidance kit, consisting of an inertial navigation system aided
                      by the Global Positioning System (GPS), that is used to upgrade existing
                      general purpose bombs. Through controlled tail fin movements, the kit
                      directs the bomb to the target.4

                      The Air Force estimates that the JDAM program cost reductions will be
                      about $3 billion. Research, development, test, and evaluation cost savings
                      accounted for $49.8 million of the $78.1 million reported as cost reductions
                      from an approved budget. These cost reductions were attributed to
                      efficient use of wind tunnel testing, which resulted in reducing or
                      eliminating some tests, reduced the cost of test instrumentation, and
                      streamlined the B-1/JDAM test program. The Air Force attributed the
                      remainder ($28.3 million) to reducing the unit costs from $42,000 to
                      $14,000. The balance of the cost reduction is comprised of a $2.9-billion
                      cost avoidance, which the Air Force attributes to the reduction in the unit
                      price of the system. The Under Secretary of Defense (Acquisition and
                      Technology) designated JDAM as one of the Defense Acquisition Pilot
                      Programs.5




                      4
                       For additional information, see Joint Direct Attack Munition: Low-Rate Initial Production Decision
                      (GAO/NSIAD-97-116R, Mar. 17, 1997).
                      5
                       Defense Acquisition Pilot Programs are given regulatory and statutory relief to explore new
                      approaches to doing business.



                      Page 13                                                     GAO/NSIAD-98-31 Acquisition Reform
                    Appendix I
                    Weapon Programs Claiming the Largest
                    Acquisition Reform Cost Reductions




                    The Javelin program is a joint Army and Marine Corps program expected
Javelin Advanced    to increase the infantry’s lethality against advanced armor threats. Javelin
Antitank Weapon     is a man portable, fire-and-forget, antitank weapon system that is
System-Medium       composed of two major components—a command launch unit and a
                    round, which is a missile sealed in a disposable launcher container. For
                    operation of the system, the round is mated with the launch unit, but the
                    launch unit may also be used in a stand-alone mode for battlefield
                    surveillance and target detection. The Army expects Javelin to defeat
                    armored targets out to distances of 2,000 meters, during the day or night
                    and in adverse weather.6

                    The Army estimates that Javelin cost reductions will be about $1.4 billion.
                    According to the Army, cost reduction efforts, accelerated procurement,
                    multiyear contracting, and a productivity improvement program will result
                    in these savings. The procurement savings were used to accelerate
                    production and finance producibility and operation and support cost
                    reduction initiatives, and a portion was returned.


                    The DDG-51 is a multimission guided missile destroyer that can operate
DDG-51 Guided       independently or as a unit of Carrier Battle Groups and Surface Action
Missile Destroyer   Groups, in support of Underway Replenishment Groups and Marine
                    Amphibious Task Forces. These ships operate in multithreat environments
                    that include air, surface, and subsurface threats. Further, the DDG-51 can
                    respond to low intensity conflict/coastal and littoral offshore warfare in
                    addition to open ocean conflict providing or augmenting power projection
                    and forward presence requirements. The ship features an all steel hull and
                    deckhouse and a gas turbine engine propulsion system.

                    The DDG-51 program estimates that it will save over $1.2 billion in
                    program costs. Part of the savings was attributed to an affordability
                    initiative started by the program manager who voluntarily offered to
                    reduce the program’s budget by $30 million per ship, beginning with the
                    Flight IIA ships in fiscal year 1994. The program office maintains a
                    database to track the initiatives and estimates that the program will
                    achieve about $20 million of the $30 million. According to program
                    officials, the savings were achievable due to adherence to acquisition
                    reform principles.




                    6
                     For additional information on this program, see Army Acquisition: Javelin Is Not Ready for Multiyear
                    Procurement (GAO/NSIAD-96-199, Sept. 26, 1996).



                    Page 14                                                     GAO/NSIAD-98-31 Acquisition Reform
                   Appendix I
                   Weapon Programs Claiming the Largest
                   Acquisition Reform Cost Reductions




                   The F-22, the Air Force’s next-generation air superiority fighter, is
F-22 Advanced      expected to be a low-observable, highly maneuverable aircraft and is to be
Tactical Fighter   used to penetrate enemy airspace and achieve a first-look, first-kill
                   capability by using air-to-air weapons against enemy aircraft. The F-22 is
                   characterized by its low observable highly maneuverable airframe, a new
                   engine capable of supersonic cruise without having to use an afterburner,
                   and advanced integrated avionics.

                   According to the Air Force, the F-22 achieved cost savings of $5 million by
                   reducing contract data requirements and staffing. In addition, the F-22
                   achieved a cost avoidance of $1.1 billion by employing lean logistics,
                   according to the Air Force. These savings may be offset by the
                   recommendations of the F-22 Joint Cost Estimating Team, which
                   recommended extending the engineering and manufacturing development
                   phase to reduce program risk. As a result, an additional $2.2 billion will be
                   required, which, the Air Force says, will be funded by eliminating
                   $706 million budgeted for preproduction verification aircraft and infusion
                   of $1,453 million, which is funded by extending the production ramp up
                   and decreasing the number of aircraft procured during production ramp
                   up. In addition, the Joint Cost Estimating Team expects to contain the
                   $13.1 billion in production cost growth through the use of multiyear
                   contracts, producibility enhancements, business and human resource
                   consolidations, outsourcing, and aggressive material management. Our
                   review of the Air Force’s F-22 restructuring plan found that the projected
                   costs are optimistic.7 The Air Force’s planned reductions are greater than
                   those achieved on prior fighter programs.


                   NAVSTAR GPS is a space-based radio positioning, navigation, and time
NAVSTAR GPS        distribution system. GPS provides precise, continuous, all-weather,
                   common-grid positioning, velocity, navigation, and time reference
                   capability to multiple users worldwide. The GPS Block IIF program is
                   expected to develop, produce, verify, and field and support space and
                   ground systems to sustain GPS in the next century. The Air Force
                   anticipates procuring 33 Block IIF satellites.

                   The Air Force estimates that GPS cost reductions exceeded $1 billion.
                   According to the Air Force, the GPS Block IIF program saved $181 million
                   by implementing acquisition reform and competing the satellite buy. In
                   addition, the program reduced the number of military specifications and

                   7
                    For additional information, see Tactical Aircraft: Restructuring of the Air Force F-22 Fighter Program
                   (GAO/NSIAD-97-156, June 4, 1997).



                   Page 15                                                      GAO/NSIAD-98-31 Acquisition Reform
                      Appendix I
                      Weapon Programs Claiming the Largest
                      Acquisition Reform Cost Reductions




                      military standards from 100 to 2 and reduced the number of contract data
                      requirements from 300 to 3. Further savings were achieved by using a
                      multiyear procurement to purchase the Block IIF satellites, as well as the
                      use of commercial off-the-shelf hardware and software for the satellite
                      production and the control system development. In addition, the program
                      estimated an additional $821 million in unbudgeted cost reductions that
                      were attributed to the same efforts used to achieve the savings reductions.


                      This program reported cost reductions of $1 billion. All helicopters in the
Longbow Apache        Apache fleet are to be modernized with new avionics and be capable of
                      firing both the laser-guided Hellfire missile and a radar-aided Longbow
                      Hellfire “fire-and-forget” missile. These improvements are designed to,
                      among other things, allow the Apache to conduct precision attacks in
                      adverse weather, automatically engage multiple targets, and operate on
                      the digital battlefield of the future. Additionally, 227 of the 758 upgraded
                      Apaches will be equipped with a new mast-mounted, millimeter-wave fire
                      control radar and more powerful engines. The Longbow Apache weapon
                      system is composed of three components—a modernized Apache
                      helicopter, a fire control radar, and a Longbow Hellfire missile.

                      The Army plans to upgrade 227 of its AH-64A Apache attack helicopters
                      into a new version known as the AH-64D Longbow Apache. The $1 billion
                      cost reduction is attributed to continuous use of a multiyear procurement
                      strategy and increasing the yearly quantities to an economic order quantity
                      of 72 aircraft per year. Additionally, the Longbow Apache has incorporated
                      a number of acquisition reform initiatives, according to the Army. For
                      example, in the request for proposals, the Army said performance
                      specifications replaced 18 military specifications, military standards were
                      reduced from 29 to 1, and the statement of work was reduced from 113 to
                      25 pages. Further, the contract data requirements were reduced from 117
                      to 14, and the DOD Cost/Schedule Control System Criteria were replaced
                      with the contractors’ management systems. These cost savings for aircraft
                      procurement, according to the Army, were applied within the program to
                      increase the procurement quantities in the first multiyear contract and the
                      outyear savings were given back to the service.


                      The Navy estimates that the LPD-17 program, a functional replacement for
LPD-17 Amphibious     the LPD-4, LSD-36, LKA-113, and LST-1179 classes of amphibious ships
Transport Dock Ship   used for embarking, transporting, and landing elements of the Marine
                      landing force, will avoid $1 billion in procurement costs. According to the



                      Page 16                                      GAO/NSIAD-98-31 Acquisition Reform
                      Appendix I
                      Weapon Programs Claiming the Largest
                      Acquisition Reform Cost Reductions




                      Navy, acquisition reform reduced costs due to a reduction of
                      specifications, equipment, and the application of advanced computerized
                      modeling and simulation. Procurement cost avoidances of $1 billion were
                      achieved, according to the Navy, by eliminating the need for a dual-source
                      arrangement for the program. The Navy expects to improve the ship’s
                      quality and reduce ownership costs by selecting higher quality systems and
                      components during ship design and construction. Also, they expect to
                      avoid costs by using more commercial design and construction methods
                      and the use of commercial off-the-shelf equipment.


                      The Joint Tactical Information Distribution System (JTIDS) is a family of
Joint Tactical        terminals to provide improved combat capability in fighter aircraft,
Information           command and control centers, and surface air defense units by providing
Distribution System   real-time, netted, jam-resistant, secure data, and voice communications.
                      JTIDS is a joint service program with the Air Force as the lead service.


                      The Air Force estimates that JTIDS cost reductions exceeded $745 million.
                      According to the Air Force, the JTIDS program office incorporated various
                      acquisition reform initiatives that contributed to reducing the cost of the
                      terminals. The Air Force estimated a $143-million cost reduction in
                      terminal production costs from acquisition reform initiatives such as
                      eliminating contract data and testing requirements. In addition,
                      Multifunction Information Distribution System terminal costs were
                      reduced by $486 million by implementing the cost savings initiatives
                      developed by the Air Force’s Affordability Manufacturing Technology
                      Demonstration program.




                      Page 17                                      GAO/NSIAD-98-31 Acquisition Reform
Appendix II

Department of Defense Estimates of
Acquisition Reform Cost Reductions by
Program

Dollars in millions
                                                          Acquisition reform   Total cost from           Total cost from
                                                             cost reduction         12/93 SAR                 12/95 SAR


Air Force programs
Advanced Medium Range Air-to-Air Missile                             $701.0         $12,917.2                  $11,388.0
E-3 Airborne Warning and Control System                               211.7             893.4                      903.4
Radar
B-1 Conventional Mission Upgrade Program                                 8.2          No SAR                      1,089.1
B-2 Advanced Technology Bomber                                          60.0          No SAR                     No SAR
C-130J                                                                300.5           No SAR                     No SAR
C-17A Globemaster III                                                5,366.0         21,368.1                   41,750.6
Cheyenne Mountain Update/Cheyenne                                       15.0           1,652.0                    1,761.4
Mountain Complex C/ITWAA
Common Missile Warning System                                         207.7          See Army                  See Army
Defense Meteorological Satellite                                         0.0           2,042.2                    2,343.4
Program/NPOESS
F-22 Air Superiority Fighter Program                                 1,129.7         71,590.9                   70,093.1
NAVSTAR GPS                                                          1,002.0         11,538.1                   16,840.1
JDAM                                                                 2,960.3            681.5                     2,470.6
Joint Primary Aircraft Training System                                300.0             302.8                     3,663.8
Joint Service Imagery Processing System                                 18.9            666.6                      646.2
Joint Surveillance Target Attack Radar System                           42.7           9,043.9                    9,351.6
JTIDS                                                                 745.5            2,005.3                    2,089.8
MILSTAR                                                               578.6         Classified                 Classified
Space Based Infrared System                                           644.0           No SAR                      2,576.8
Titan IV Expendable Launch Vehicle                                    661.8          37,708.5                   23,562.2
Army programs
Advanced Field Artillery Tactical Data System                            0.1            949.7                     1,161.6
Advance Threat Infrared                                                 27.2          No SAR                      3,378.2
Countermeasures/Common Missile Warning
System
Abrams Upgrade                                                        744.0            6,397.8                    6,694.2
Longbow Apache                                                       1,001.5           8,211.8                    8,275.2
Brilliant Anti-Armor Submunitions                                       50.2           3,254.0                    3,042.1
Blackhawk UH-60L                                                      133.2            9,970.2                    4,778.6
Bradley Fighting Vehicle System Upgrade                               296.6            4,185.3                    4,125.9
Chemical Demilitarization                                                6.6          No SAR                    13,612.6
Crusader                                                                29.0          No SAR                      2,641.1
Family of Medium Tactical Vehicles                                       0.1         15,875.3                   16,376.0
                                                                                                              (continued)



                                                Page 18                                GAO/NSIAD-98-31 Acquisition Reform
                                                 Appendix II
                                                 Department of Defense Estimates of
                                                 Acquisition Reform Cost Reductions by
                                                 Program




Dollars in millions
                                                           Acquisition reform            Total cost from           Total cost from
                                                              cost reduction                  12/93 SAR                 12/95 SAR
Joint Surveillance Target Attack Radar                                  $15.8                  $1,585.7                   $1,387.1
System Ground Service Module
Javelin                                                               1,425.5                    5,096.6                    3,826.2
Longbow Hellfire                                                           0.0                   3,498.1                    2,606.9
Multiple Launch Rocket System                                            12.5                    6,281.5                    6,802.8
Palletized Load System                                                     8.6                   1,042.2                    1,237.2
Patriot (PAC-3, DOD)                                                    158.0                    1,772.0                    5,899.3
Sense and Destroy Armor (SADARM )                                        12.9                    4,785.0                    2,703.6
Single Channel Ground and Airborne Radio                                264.6                    4,366.3                    3,806.2
System
Secure Mobile Anti-Jam Reliable Tactical                                540.0                     944.8                      978.5
Terminal
Army Tactical Missile System                                            340.4                    2,590.5                    4,409.1
Theater High Altitude Air Defense                                       101.5                    4,819.0                    4,947.2
Navy programs
Sidewinder AIM-9X                                                       134.4                   No SAR                       682.3
AN/SQQ-89 Surface Ship Undersea Warfare                                  48.0                    3,820.0                    3,996.1
Combat System
AV-8B Remanufacture                                                      21.8                   No SAR                      2,318.3
Cooperative Engagement Capability                                       367.8                   No SAR                      2,587.8
DDG-51 Destroyer                                                      1,195.0                  56,799.9                   57,095.2
E-2C Hawkeye Carrier Based Airborne Early                               590.6                   No SAR                      3,331.1
Warning Command and Control System
EHF SATCOM                                                               47.1                    2,334.0                    2,150.2
F/A-18C/D                                                                24.0                  38,921.3                         0.0
F/A-18E/F                                                             3,000.0                  89,128.1                   80,958.7
Joint Standoff Weapon System                                            143.0                    2,878.0                  10,564.9
LHD-1                                                                    55.0                    8,514.4                    7,907.9
LPD-17 Amphibious Transport Dock Ship                                 1,000.0                      59.1                       72.9
Multifunction Information Distribution System-                           12.0                    1,092.1                    1,129.9
Low-Volume Terminal
New Attack Submarine Program                                            555.3                   No SAR                    64,891.4
Standard Missile-2 Block I, II, III, A, B                                  1.0                   8,263.8                    8,759.5
Standard Missile-2 IV                                                      0.3                   4,915.5                     864.7
SSN-21 Seawolf- AN/BSY-2                                                 62.8                  12,908.2                   13,124.3
Naval Undergraduate Jet Flight Training                                  41.8                    5,980.9                    5,417.0
System (T-45TS)
Tomahawk                                                                566.2                  12,649.8                   13,847.1
Trident II Missile                                                      190.0                  25,513.5                   27,702.5
                                                                                                                        (continued)


                                                 Page 19                                         GAO/NSIAD-98-31 Acquisition Reform
                                        Appendix II
                                        Department of Defense Estimates of
                                        Acquisition Reform Cost Reductions by
                                        Program




Dollars in millions
                                                  Acquisition reform            Total cost from           Total cost from
                                                     cost reduction                  12/93 SAR                 12/95 SAR
UHF Follow-on Communication Satellite                         $185.0                  $1,720.5                   $1,868.5
V-22                                                           639.9                    6,636.4                  46,599.7




                                        Page 20                                         GAO/NSIAD-98-31 Acquisition Reform
Appendix III

List of Weapon Systems We Reviewed



Dollars in millions
                                                                       12/95 SAR
                                                                    Program cost                                       Percent of
                                                                   normalized for                  Program cost     program cost
                                                                         quantity      12/93 SAR     Increase or      Increase or
Service          Program                               Base year         changes    Program cost      (decrease)       (decrease)
Army             Advanced Field Artillery Tactical         1996          $1,133.6         $919.9          $213.7              23
                 Data System
                 Brilliant Anti-Armor Submunitions         1991           2,508.0        2,578.1           (70.1)              (3)
                 Blackhawk UH-60L Utility                  1971           1,858.7        1,917.5           (58.8)              (3)
                 Helicopter
                 Bradley Fighting Vehicle System           1994           3,455.4        3,065.6           389.8              13
                 Upgrade
                 Joint Surveillance Target Attack          1989           1,064.4        1,272.9          (208.5)             (16)
                 Radar System Ground Service
                 Module
                 Javelin Advanced Anti-Tank                1990           3,382.6        3,728.8          (346.2)              (9)
                 Weapon System-Medium
                 Longbow Apache                            1996           7,366.6        7,010.6           356.0                5
                 Longbow Hellfire Missile System           1996           2,402.9        2,968.0          (565.0)             (19)
                 Multiple Launch Rocket System             1978           3,118.3        3,052.8            65.5                2
                 Palletized Load System                    1993            896.3           997.6          (101.3)             (10)
                 Sense and Destroy Armor                   1989           1,502.9          906.7           596.2              66
                 Single-Channel Ground and                 1984           2,597.5        3,090.6          (493.1)             (16)
                 Airborne Radio System
                 Secure Mobile Anti-Jam Reliable           1992            811.0           754.3            56.7                8
                 Tactical Terminal
                 Average Cost Increase or                                                                                    (0.5)
                 (Decrease)
Navy             AN/SQQ-89 Surface Ship                    1985           3,418.9        3,429.8           (10.9)            (<1)
                 Antisubmarine Warfare System
                 DDG-51 Guided Missile                     1987          41,948.2       41,023.5           924.7                2
                 Destroyer
                 F/A-18 E/F Naval Strike Fighter           1990          54,687.6       53,858.8           828.8                2
                 LHD-1 Amphibious Assault Ship             1982           6,042.2        6,288.8          (246.6)              (4)
                 Navy EHF SATCOM Program                   1990           1,891.7        1,875.0            16.7                1
                 SSN-21/AN/BSY-2 Attack                    1990          12,201.2       12,039.9           161.3                1
                 Submarine-Combat System
                 Standard Missile-2 Block IV               1984           2,565.4        2,619.3           (53.9)              (2)
                 Surface-to-Air Missile
                 Standard Missile-2 Block I, II, III       1984           7,061.6        6,975.0            86.6                1
                 A, B Surface-to-Air Missile
                 Trident II Sea Launched Ballistic         1983          19,776.8       19,563.5           213.3                1
                 Missile
                                                                                                                      (continued)


                                                 Page 21                                       GAO/NSIAD-98-31 Acquisition Reform
                                               Appendix III
                                               List of Weapon Systems We Reviewed




Dollars in millions
                                                                      12/95 SAR
                                                                   Program cost                                       Percent of
                                                                  normalized for                   Program cost    program cost
                                                                        quantity       12/93 SAR     Increase or     Increase or
Service          Program                             Base year          changes     Program cost      (decrease)      (decrease)
                 Ultra High Frequency Follow-on            1988         $1,558.7        $1,433.6          $125.1               9
                 Communications Satellite
                 Average Cost Increase or                                                                                     1.4
                 (Decrease)
Air Force        Advanced Medium Range                     1992         12,003.3        11,923.4            79.9               1
                 Air-to-Air Missile
                 E-3 Airborne Warning and                  1989            730.3           696.2            34.1               5
                 Control System Radar
                 C-17A Globemaster III                     1996         23,174.6        23,053.6           121.0               1
                 Cheyenne Mountain Update                  1989          1,665.0         1,570.8            94.2               6
                 Defense Meteorological Satellite          1975            875.2           778.9            96.3              12
                 Program
                 F-22 Advanced Tactical Fighter            1990         50,885.9        49,074.3         1,811.6               4
                 Joint Surveillance Target Attack          1983          6,119.2         5,813.4           305.8               5
                 Radar System
                 NAVSTAR Global Positioning                1979          3,364.1         2,593.7           770.4              30
                 System Satellite
                 NAVSTAR Global Positioning                1979          3,133.0         3,089.3            43.7               1
                 System User Equipment
                 Titan IV Space Booster                    1985         23,653.3        23,160.5           492.8               2
                 Average Cost Increase or                                                                                     3.2
                 (Decrease)




                                               Page 22                                         GAO/NSIAD-98-31 Acquisition Reform
Appendix IV

Comments From the Department of Defense




See comment 1.




                 Page 23     GAO/NSIAD-98-31 Acquisition Reform
               Appendix IV
               Comments From the Department of Defense




               The following are GAO’s comments on the Department of Defense’s letter
               dated October 3, 1997.


               1. DOD’s technical comments were considered and changes were made
GAO Comments   where appropriate.




(707155)       Page 24                                   GAO/NSIAD-98-31 Acquisition Reform
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