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)
*** End of document. ***