Defense Acquisitions: Navy and Marine Corps Pilot Program
Initiatives to Reduce Total Ownership Costs (22-MAY-01,
GAO-01-675R).
This is the third in a series of GAO reports evaluating the
military services' efforts to reduce weapons systems operating
and support costs. GAO previously reported on Army and Air Force
efforts. This report evaluates the Navy and Marine Corps pilot
programs. GAO found that the Navy and Marine Corps have begun
several efforts to reduce weapon system operating and support
costs. For example, they are using an open architecture design
method that reduces the cost of component replacement and changes
later in system life. In addition, the Navy has other related
objectives and initiatives that could significantly reduce
operating and support costs. Through these and other initiatives,
the Navy and Marine Corps have reported progress in reducing
operating and support cost in its pilot programs.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-01-675R
ACCNO: A01047
TITLE: Defense Acquisitions: Navy and Marine Corps Pilot Program
Initiatives to Reduce Total Ownership Costs
DATE: 05/22/2001
SUBJECT: Military cost control
Military procurement
Naval procurement
Weapons systems
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GAO-01-675R
GAO- 01- 675R Defense Acquisitions
United States General Accounting Office Washington, DC 20548
May 22, 2001 The Honorable James Inhofe Chairman The Honorable Daniel Akaka
Ranking Member Subcommittee on Readiness and Management Support Committee on
Armed Services United States Senate
Subject: Defense Acquisitions: Navy and Marine Corps Pilot Program
Initiatives to Reduce Total Ownership Costs
The cost of operating and supporting the services? weapon systems is
absorbing an increasing share of the defense budget and is reducing funds
available for buying new systems. As a result, older weapons are being
retained in the inventory longer, which further increases their operating
and support costs. Operating and support costs include costs for fuel,
repair parts, maintenance, and contract and support services, as well as for
all civilian and military personnel associated with a weapon system.
The Department of Defense (DOD) has set broad goals for lowering the
operating and support costs of both weapon systems in development and those
already fielded. The projected life- cycle costs for developmental systems
are expected to be 20 to 50 percent less than the systems being replaced.
The operating and support costs of fielded systems are expected to be
reduced 20 percent by 2005. The Department has established baselines against
which the programs can calculate progress and is monitoring progress through
quarterly reports.
In April 1998, DOD established an initiative that expanded program managers?
responsibilities for designing and producing new weapon systems to include
more accountability for the total ownership cost of the system, including
its operating and support costs. Under this initiative, each service was to
designate 10 programs as pilots to test innovative approaches to reduce
total ownership costs, especially operating and support costs.
Page 2 GAO- 01- 675R Defense Acquisitions This is the third in a series of
reports in response to your request that we evaluate the
military services' efforts to reduce weapon systems operating and support
costs. We previously reported on Army and Air Force efforts. 1 We reported a
lack of accountability and priority in reducing their systems? operating and
support costs. We recommended that the Army and Air Force develop operating
and support cost goals for each weapon system and track progress toward
achieving those goals.
To complete our evaluation of the military services' operating and support
cost reduction efforts, we examined 10 Navy and Marine Corps pilot programs
and briefed your staff on the results. This letter summarizes our
observations on the Navy and Marine Corps pilot programs and provides, as an
enclosure, our briefing slides.
Summary of Navy and Marine Corps Operating and Support Cost Reduction
Efforts The Navy and Marine Corps cited a number of initiatives to reduce
weapon system operating and support costs. For example, they are using an
open architecture design method that reduces the cost of component
replacement and changes later in system life. They are also providing
contractor incentives to include more operating and support cost saving
features in the system's design. In addition, the Navy has other related
objectives and initiatives that could significantly reduce operating and
support costs. These include reducing manpower requirements, improving the
quality of life for sailors, improving the responsiveness of the supply
system, and improving performance by improving reliability and reducing
maintenance requirements.
Through these and other initiatives, the Navy and Marine Corps have reported
progress in reducing operating and support cost in its pilot programs. The
table below shows the reported progress of the programs as estimated for
fiscal year 2005.
Table 1: Navy and Marine Corps Cost Avoidance/ Reduction in Fiscal Year 2005
Dollars in millions Pilot program Cost avoidance/ reduction fiscal year 2005
Standoff Land Attack Missile Expanded Response $3.3 H- 60 Helicopter 10.0
Aviation Support Equipment 161.0 EA- 6B 15.8 CG- 47 Class Aegis Cruiser 62.3
CVN- 68 Class Carrier (9 carriers) 57.6 Medium Tactical Vehicle Replacement
20.0 Advanced Amphibious Assault Vehicle 0.3 LPD- 17 80.0 Common Ship 91.0
1 Defense Acquisitions: Air Force Operating and Support Cost Reductions Need
Higher Priority
(GAO/ NSIAD- 00- 165, Aug. 29, 2000) and Defense Acquisitions: Higher
Priority Needed for Army Operating and Support Cost Reduction Efforts (GAO/
NSIAD- 00- 197, Sept. 29, 2000).
GAO- 01- 675R Defense Acquisitions Page 3 Although each program expects some
costs to decline, the Navy and Marine Corps
report that costs could decline even further if some challenges were
successfully resolved. Similar to our findings in the Army and Air Force,
Navy program officials report that operating and support cost reductions do
not have the same funding priority as performance or safety issues. Program
officials also report that the database used to track operating and support
costs could be improved. Officials agreed that focusing attention on
operating and support costs through the pilot programs as well as through
Navy and Marine Corps policy resulted in incentives to lower costs.
In our previous reports, we recommended that the Army and Air Force develop
specific and measurable operating and support cost requirements for each of
their weapon systems and track progress in meeting them in the same manner
that development and procurement costs are established, tracked, and
measured. We believe that the Navy and Marine Corps, like the Army and Air
Force, would benefit from early establishment of specific, measurable
requirements for each weapon system?s operating and support costs and
monitoring of progress toward achieving those requirements.
The enclosure to this letter contains the briefing slides that we prepared
on the Navy and Marine Corps initiatives to reduce operating and support
costs. These briefing slides were reviewed by officials from the Navy, the
Marine Corps, and the Office of the Secretary of Defense, and these
officials provided oral comments on the technical accuracy as well as tone
and clarity of the presentation. We incorporated their comments as
appropriate. The officials agreed with our observations noting that
readiness was the Navy and Marine Corps first priority.
If you or your staff have any questions on these matters, please call me on
(202) 512- 4841 or Bill Graveline on (256) 650- 1414.
James F. Wiggins Director, Acquisition and Sourcing Management
Enclosure
GAO- 01- 675R Defense Acquisitions Page 4 ENCLOSURE I ENCLOSURE I
Slide 1
1
Navy and Marine Corps Initiatives to Reduce Total
Ownership Cost Briefing to Subcommittee on Readiness and Management
Support Senate Armed Services Committee
April 19, 2001
Slide 2
2
Background
* Congress directed DOD to develop a plan to streamline DOD?s acquisition
organization, workforce, and infrastructure.
Each service designated 10 programs to develop innovative approaches to
reducing costs.
Committee requested GAO evaluate pilot program initiatives and results.
GAO- 01- 675R Defense Acquisitions Page 5 ENCLOSURE I ENCLOSURE I
Slide 3
3
Background
GAO Reports and Briefings
Air Force Operating and Support Cost Reductions Need Higher Priority
(NSIAD- 00- 165); Higher Priority Needed for Army Operating and Support Cost
Reduction Efforts
(NSIAD- 00- 197); Briefings to the Committee, October and December 2000.
Air Force and Army do not establish operating and support cost goals and
manage to them.
Air Force and Army have limited visibility of operating and support costs.
We recommended that the Air Force and Army develop operating and support
cost goals and track progress toward achieving those goals.
Slide 4
4
Key Questions
What initiatives have the Navy and Marine Corps proposed in their pilot
programs to reduce total ownership cost?
What results have they obtained as a result of the initiatives?
What factors limit operating and support cost reductions?
GAO- 01- 675R Defense Acquisitions Page 6 ENCLOSURE I ENCLOSURE I
Slide 5
5
Navy and Marine Corps Pilot Programs
Fielded Systems
Standoff Land Attack Missile-- Expanded Response
H- 60 Helicopter
Aviation Support Equipment
EA- 6B
CG- 47 Class Aegis Cruiser
CVN 68 Class Carrier
Medium Tactical Vehicle Replacement
Slide 6
6
Navy and Marine Corps Pilot Programs
Developmental Systems
Advanced Amphibious Assault Vehicle
LPD- 17
Other
Common Ship
Not one specific system, but a program to identify initiatives that could
be used on a variety of ships.
GAO- 01- 675R Defense Acquisitions Page 7 ENCLOSURE I ENCLOSURE I
Slide 7
7
Navy and Marine Corps Common Themes
Pilots have different initiatives, but the initiatives had the following
themes in common:
Reduce total cost of ownership
Reduce manpower requirements
Improve shipboard quality of life
Improve responsiveness of the supply system
Improve performance
Reduce cyclical maintenance requirements
Improve reliability
Slide 8
8
What Initiatives Have the Pilot Programs Taken?
Fielded systems
Design: some changes can be made when systems are available during
overhaul or other times.
Stern flap for the CG- 47
Logistics improvements
Diagnostic equipment improvements
Performance- based logistics contracts
Rework maintenance requirements
Repair or replace parts during regularly scheduled maintenance, eliminate
mid- life rebuilds
Substitute components that need less maintenance
GAO- 01- 675R Defense Acquisitions Page 8 ENCLOSURE I ENCLOSURE I
Slide 9
9
What Initiatives Have the Pilot Programs Taken?
Developmental systems: consider opportunities to reduce cost of ownership
while designing the system.
Advanced Amphibious Assault Vehicle: special contract provisions to
encourage contractor to reduce operating and support costs through design.
LPD- 17: corrosion- resistant materials
Both fielded and developmental systems
Buy smart
Producibility studies
Ordering sufficient quantities for efficient production
Slide 10
10
What Results Have the Pilots Obtained?
DOD goal is to reduce costs by 20 percent in 2005.
Operating and support costs for fielded systems; lifecycle costs for
developmental systems
According to DOD, 20 percent reduction is an overall goal, not based on an
analysis of what is possible in each program.
Baseline for programs is established.
All programs report some progress toward reducing ownership costs in
fiscal year 2005.
GAO- 01- 675R Defense Acquisitions Page 9 ENCLOSURE I ENCLOSURE I
Slide 11
11
What Barriers Do Pilots Report?
Funding Priority
NAVSEA and NAVAIR tax programs and reinvest the funds in projects, but
funds can be and have been used for other purposes.
Small Business Innovation Research Funds applied for and awarded to a
number of programs-- one- half of the awards are for projects that reduce
ownership cost.
For ships, funding is programmed for mid- life overhaul, but some
improvements could be made at other times.
Low Quantity/ High Procurement Unit Cost paradigm.
Data Reliability
Data for operating and support costs not complete.
Slide 12
12
Individual Program Initiatives
Standoff Land Attack Missile- Expanded Response
Missile total ownership cost is not typical.
Production is over 52 percent; O& S is 23 percent
Initiatives
Design-- substantially reduced part count.
Production-- reduced missile lead time to 52 weeks, establish more
efficient production rate.
Operating and support cost-- reduced data link failure rate by 90 percent
through modification
Results-- savings/ cost avoidance in 2005 of $3.3 million or about 29
percent.
GAO- 01- 675R Defense Acquisitions Page 10 ENCLOSURE I ENCLOSURE I
Slide 13
13
Individual Program Initiatives
H- 60 Helicopter Initiatives
Implement Helicopter Master Plan-- decrease number of configurations
Use remanufacture to increase reliability, maintainability, and safety and
decrease required maintenance.
Improve repair response time through performance based logistics support.
Implement acquisition reforms such as retaining savings, 2- year funds,
provide operating and maintenance funds once a year.
Results-- for H- 60 alone-- about 3 percent or about $10 million. Full
implementation of Helicopter Master Plan could yield 20.3 percent or $156
million in fiscal year 2005.
Slide 14
14
Individual Program Initiatives
Aviation Support Equipment Initiatives
Replace legacy support equipment with the Consolidated Automated Support
system
25 equipment types to 1; reduced personnel from 105 to 54, reduced space
on the carrier from 2700 to 1900 square feet, 624 publications reduced to 4
CDs
Replace or upgrade common ground support equipment
Implement Reliability Centered Maintenance Analysis on support equipment.
Results: savings/ cost avoidance of $161million in fiscal year 2005-- 41
percent reduction.
GAO- 01- 675R Defense Acquisitions Page 11 ENCLOSURE I ENCLOSURE I
Slide 15
15
Individual Program Initiatives
EA- 6B Initiatives
Reliability improvements to engine and navigation
Replace components of weapons
Reduce number of transmitters
Upgrade aircraft
Reduce configurations from 4 to 2 in fiscal year 2007
Improve maintenance flow
Use Integrated Maintenance Concept to define revised intervals and
maintenance levels for preventative maintenance.
Results: Savings/ cost avoidance estimated at $15.8 million- 8.63 percent
in fiscal year 2005.
Slide 16
16
Individual Program Initiatives
CG- 47 Class Aegis Cruiser Initiatives
Integrated Ship Controls-- automation of ship controls
All Electric removes gas turbine generator, replaces with all electric
heaters and desalinators.
Stern Flap reduces drag and fuel consumption.
Wireless sensors network reduces crew workload by sensing changes in
environment, personnel, structure and machinery.
Advanced Food Service introduces commercial food preparation techniques,
equipment
Results: Reduced crew workload, $62.3 million savings/ cost avoidance.
Goal is $261million in fiscal year 2005.
GAO- 01- 675R Defense Acquisitions Page 12 ENCLOSURE I ENCLOSURE I
Slide 17
17
Individual Program Initiatives
CVN-- 68 Class Carrier Initiatives
Use ongoing programs such as Engineering for Reduced Maintenance, Top
Management Attention, Technology Back Fit, Smart Carrier to develop
initiatives. Maintenance cost and crew workload targeted
advanced paints and materials
commercial- off- the- shelf incinerator
Improved ACE Stanchion System
Improved Processes-- dry- docking every 12 years versus every 6 years,
cumbersome work practices analysis
Results: Estimated savings/ cost avoidance of $57.6 million in 2005 for
nine carriers.
Slide 18
18
Individual Program Initiatives
Medium Tactical Vehicle Replacement
Initiatives
Design-- better fuel usage, independent suspension, on- board diagnostics,
eliminate mid- life rebuild
Buy at an efficient rate-- 7,000 trucks in 5 years
Contractor logistics support
Training simulators, maintenance simulators
Results: Savings/ cost avoidance of $20 million in fiscal year 2005.
GAO- 01- 675R Defense Acquisitions Page 13 ENCLOSURE I ENCLOSURE I
Slide 19
19
Individual Program Initiatives
Advanced Amphibious Assault Vehicle Initiatives
Operating and support cost considered in design: contract provision allows
contractor to recoup costs for developing initiatives that reduce operating
costs
Employ open architecture, such as on 30- millimeter gun
Transmission, NBC filters, suspension, fire control computer processor.
Established threshold and objective baselines
Identified cost avoidance from initiatives of $264K in 2005.
Expected to be less costly to support than current system
Slide 20
20
Individual Program Initiatives
LPD- 17 Initiatives
Replacement system for 4 classes of ships
Reduced manpower by 20 percent
Managed ownership cost- reduction approach
Identified tools, metrics, baseline allocated to integrated product teams
Goal: avoid costs through design.
Implemented 96 initiatives
Refrigeration plant, diesel generators
Reduced anticipated maintenance by 25 percent.
Results: Estimated reductions of $80 million in 2005. Life cycle goal is
5. 2 billion; $4.3 billion estimated to date.
GAO- 01- 675R Defense Acquisitions Page 14 ENCLOSURE I ENCLOSURE I
Slide 21
21
Individual Program Initiatives
Common Ship
Crosscutting program identifies hull, mechanical, electrical improvements
to reduce operating and support costs, reduce workloads, improve quality of
life aboard ship, and improve readiness.
Goal: reduce costs $68 million by 2005.
Methodology: analyze what?s costing the most and prioritize projects for
return on investment.
Projects include improved watertight doors, antistaining paint, corrosion
resistant materials, and insertion of new technologies.
Result: $91 million cost avoidance by fiscal year 2005.
Slide 22
22
Observations
The Navy and Marine Corps identified cost drivers and successfully pursued
a number of cost- reduction efforts
Operating and support cost reductions are one of a number of objectives
that the Navy and Marine Corps pursued. Other objectives include workload
reduction, performance improvement, quality- of- life improvements. In
making improvements to satisfy these objectives, operating and support costs
are lowered as well.
Developmental systems such as AAAV and LPD- 17 are not pushing the
envelope on technology, so some options for lower operating and support cost
will become available.
GAO- 01- 675R Defense Acquisitions Page 15 ENCLOSURE I ENCLOSURE I
Slide 23
23
Observations
The Navy and Marine Corps, like the other services, estimate operating and
support costs but have difficulty with the reliability of data in tracking
actual costs or using data to establish baselines that programs could be
held accountable for as they are now accountable for growth in development
and production cost.
Additional accountability could raise the priority of operating and
support costs and focus attention on them.
(120036)
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