Defense Acquisitions: Information for Congress on Performance of 
Major Programs Can Be More Complete, Timely, and Accessible	 
(28-MAR-05, GAO-05-182).					 
                                                                 
DOD has more than $1 trillion worth of major defense acquisition 
programs, on which it must report to Congress, including a	 
comparison of a current program's costs to a baseline containing 
its cost, quantity, schedule, and performance goals. When these  
goals are changed, the program is "rebaselined" to reflect	 
current status. However, measuring current estimates against the 
most recent baseline without additional perspectives may obscure 
for Congress how programs are performing over time. Concerned	 
over this, you asked GAO to examine how DOD's use of rebaselining
has affected the adequacy of data provided to Congress on major  
defense acquisition programs.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-182 					        
    ACCNO:   A20137						        
  TITLE:     Defense Acquisitions: Information for Congress on	      
Performance of Major Programs Can Be More Complete, Timely, and  
Accessible							 
     DATE:   03/28/2005 
  SUBJECT:   Accountability					 
	     Cost analysis					 
	     Data integrity					 
	     Defense capabilities				 
	     Defense cost control				 
	     Defense procurement				 
	     Internal controls					 
	     Program evaluation 				 
	     Program management 				 
	     Reporting requirements				 
	     Performance measures				 
	     Timeliness 					 
	     Comanche Helicopter				 
	     DD(X) Destroyer					 
	     F-22 Raptor Aircraft				 
	     F/A-18E/F Aircraft 				 
	     F/A-22 Aircraft					 
	     Hornet Aircraft					 
	     Joint Strike Fighter				 
	     MH-60R Helicopter					 
	     RAH-66 Helicopter					 
	     Stryker Armored Vehicle				 

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GAO-05-182

United States Government Accountability Office

  GAO	Report to the Subcommittee on Defense, Committee on Appropriations, U.S.
                                     Senate

March 2005

DEFENSE ACQUISITIONS

Information for Congress on Performance of Major Programs Can Be More Complete,
                             Timely, and Accessible

                                       a

GAO-05-182

[IMG]

March 2005

DEFENSE ACQUISITIONS

Information for Congress on Performance of Major Programs Can Be More Complete,
Timely, and Accessible

  What GAO Found

DOD could be reporting more complete information beyond what is required
by law on the unit cost performance of major defense acquisition programs
to Congress for its authorization and appropriations deliberations. DOD
does present Congress with valuable information about a program's
performance by comparing the latest unit cost estimate against the most
recent approved baseline. However, this provides only one perspective on
performance because rebaselining shortens the period of performance
reported and resets the measurement of cost growth to zero. Other
meaningful perspectives are not reported. First, DOD does not report the
cumulative unit cost growth, in constant dollars, that a program has
experienced since the first full baseline was established. For example,
DOD reported in the 2003 Selected Acquisition Report (SAR), the most
recent available, that the F/A-22 Raptor program's unit cost decreased by
0.33 percent in the previous 4 months- since the latest rebaselining. DOD
did not report that the program's unit cost had cumulatively increased by
72 percent in the last 143 months. Second, the change in unit cost between
one budget request to Congress and the next is not measured or reported.
For example, DOD reported in the 2003 SAR that unit cost for the Stryker
program increased by 1.34 percent in the 2 months since the latest
rebaselining; it did not report that unit cost had grown by 21 percent in
the previous 12 months.

DOD could be more timely in reporting to Congress that it has rebaselined
individual programs. A key factor is that DOD is not required by statute
or its own policies to report a program's rebaseline to Congress. Although
DOD includes the latest rebaselining actions in the April SARs, a
rebaseline approved after early April may not be reported to Congress
before it enacts the authorization and appropriations legislation. For
example, the DD(X) Destroyer program established a new baseline on April
23, 2002, but did not report this new baseline to Congress in a SAR until
April 2003. As a result, between April 2002 and the passage of the fiscal
year 2003 defense budget, the SAR provided Congress did not reflect the
approved baseline for the DD(X) program.

Congressional oversight of DOD's adherence to established cost and
schedule baselines is unnecessarily constrained because DOD classifies
about 50 percent of the SARs it submits to Congress, despite the fact that
only a small amount of data in each of these SARs is actually classified.
This reporting practice restricts access to the unclassified cost,
quantity, and schedule data for congressional staff without security
clearances and requires special handling procedures of that unclassified
data by those with clearances.

                 United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
Information for Congress on Unit Cost Performance Could Be

More Complete Reporting of Rebaselinings Could Be More Timely and
Unclassified

Data Is Unnecessarily Restricted Conclusions Recommendations for Executive
Action Matters for Congressional Consideration Agency Comments and Our
Evaluation

                                       1

                                      2 3

                                       7

12 14 14 15 15

Appendix I Scope and Methodology

Appendix II Comments from the Department of Defense

  Tables

Table 1: Examples of the Highest Number of Rebaselinings 8 Table 2:
Examples Showing Cumulative Changes to Unit Cost Not

Reported, in Constant Dollars 8 Table 3: F/A-18E/F Effects of Inflation on
Reporting Cost Changes 9 Table 4: Illustration of Differences in PAUC
Calculations When

Annual Changes Are Shown 10 Table 5: Example of the Impact of Programmatic
Adjustments in the Comanche Helicopter Program 11 Table 6: PAUC growth and
Nunn-McCurdy Determinations from 2001 to 2003, in Percent 12 Table 7:
Examples of the Longest Time Lags in Reporting Program Rebaselines to
Congress 13

Abbreviations

AAWS-M Advanced Anti-Tank Weapon System-Medium
AEHF Advanced Extremely High Frequency Satellites
AMRAAM Advanced Medium Range Air-to-Air Missile
APB Acquisition Program Baseline
APUC Average Procurement Unit Cost
CMUP Conventional Mission Upgrade Program
DOD Department of Defense
FBCB2 Force XXI Battle Command Brigade and Below
FMTV Family of Medium Tactical Vehicle
JASSM Joint Air-to-Surface Standoff Missile
RDT&E Research, Development, Testing, and Evaluation
NAS National Airspace System
PAUC Program Acquisition Report
SAR Selected Acquisition Report
SM-2 Standard Missle-2
SSN-21 High Speed Submarine Nuclear Combat System
USMC United States Marine Corps

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protection in the United States. It may be reproduced and distributed in
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separately.

United States Government Accountability Office Washington, DC 20548

March 28, 2005

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

The Department of Defense (DOD) has more than $1 trillion worth of
major defense acquisition programs1 in development and production. For

the purposes of congressional oversight and decision making, DOD is
required by law to report to Congress the unit costs (costs divided by
quantities) for each program. DOD reports this unit cost for both the
current budget estimate and the most recent acquisition program baseline,
which describes the cost, quantity, schedule, and performance goals of a
program. 2 DOD reports these comparisons in a Selected Acquisition
Report (SAR).3 These reports, typically provided in early April, aid the

Congress during its deliberations over the defense authorization and
appropriations legislation.

As an acquisition program proceeds, DOD may determine that the original
baselined goals approved by decision makers are unachievable. Under
such circumstances, DOD will "rebaseline" the program so the goals more
realistically reflect the program's current status. However, to the extent
that current estimates are only measured against the most recent baseline,

1 Major defense acquisition programs are defined as those estimated as
requiring an eventual total expenditure for research, development, test,
and evaluation of more than $365 million or for procurement of more than
$2.190 billion in fiscal year 2000 constant dollars. Using constant
dollars removes the effects of inflation and shows all dollars at the
value they would have in a selected base year. All cost figures in this
report are presented in constant dollars, unless otherwise noted.

2 10 U.S.C. S: 2435 establishes the requirement for program baselines.

3 10 U.S.C. S: 2432 establishes the SAR requirements, which include
providing cost information to Congress. Another statute, 10 U.S.C. S:
2433, establishes the requirement for unit cost reports. If certain
program cost increase thresholds are exceeded (known as unit cost or
Nunn-McCurdy breaches), DOD is required to report to Congress and, if
applicable, certify the program to Congress.

  Results in Brief

Congress may not be getting in each SAR a clear picture on just how well
programs are performing over time.

Concerns over these issues led you to request that we evaluate how DOD's
use of rebaselining has affected the adequacy of data provided to Congress
on the performance of major defense acquisition programs. To address this
objective, we assessed SAR cost, schedule, and quantity data for
individual acquisition programs using federal control criteria4 such as

accuracy, completeness, timeliness, and accessibility. This report focuses
on (1) the completeness of unit cost reporting and (2) the timeliness of
reporting on rebaselining and the accessibility of unclassified data.

In conducting our review, we reviewed pertinent statutes and DOD
acquisition system guidance; analyzed more than 650 SARs, both quarterly
and annual, of all major defense acquisition programs for the period 1996
to 2003; and interviewed cognizant DOD officials. We conducted our work
from February 2004 to January 2005 in accordance with generally accepted
government auditing standards.

DOD could be reporting more complete information beyond what is required
by law on unit cost performance to Congress for its authorization and
appropriations deliberations. DOD does present Congress with valuable
information about a program's performance by comparing the latest unit
cost estimate against the most recently approved baseline. However, this
provides only one perspective on performance because rebaselining shortens
the period of performance reported and resets the measurement of cost
growth to zero. Other meaningful perspectives are not reported. For
example, DOD reported in the 2003 SAR, the most recent available, that the
F/A-22 Raptor program's unit cost decreased by 0.33 percent in the
previous 4 months-since the latest rebaselining. DOD did not report that
the program's unit cost had cumulatively increased by 72 percent in the
last 143 months. Second, the change in unit cost between one budget
request to Congress and the next is not measured or reported. For example,
DOD reported in the 2003 SAR that unit cost for the Stryker program
increased by 1.34 percent in the 2 months since the latest

4 GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 Washington, D.C.: November 1999) and GAO, Internal
Control Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.:
August 2001).

rebaselining; it did not report that unit cost had grown by 21 percent in
the previous 12 months.

DOD could be more timely in reporting to Congress that it has rebaselined
individual programs. A key factor is that DOD is not required by statute
or its own policies to report a program's rebaseline to Congress. Although
DOD includes the latest rebaselining actions in the April SARs, a
rebaseline approved after early April may not be reported to Congress
before it enacts the authorization and appropriations legislation.
Although the DD(X) Destroyer program established a new baseline on April
23, 2002, for example, it did not report it to Congress in a SAR until
April 2003. As a result, between the April 2002 SAR and the passage of the
fiscal year 2003 defense budget, the SAR provided to Congress did not
reflect the approved baseline for the DD(X) program.

DOD classifies about 50 percent of the SARs it submits to Congress,
despite the fact that only a small amount of data in each of them is
actually classified. This classification and reporting policy restricts
access to the unclassified cost, quantity, and schedule data for
congressional staff without security clearances and requires special
handling procedures of that unclassified data by those with clearances. As
a result, congressional oversight of DOD's adherence to established cost
and schedule baselines is unnecessarily constrained.

Taken altogether, current reporting policies and practices for
rebaselining could be improved to provide more useful information to
decision makers and strengthen accountability for performance. This report
makes recommendations that the Secretary of Defense strengthen the SARs
for major defense acquisition programs by requiring them to be more
complete, timely, and accessible. DOD concurred with our recommendations
and provided technical comments, which were incorporated, as appropriate.

Background 	In 1967, to obtain consistent, reliable data on major defense
acquisition programs, DOD instituted a reporting system to summarize
program cost, schedule, and performance information called the SAR. The
purpose was to focus management attention on a program's performance and
changes

to its acquisition plan. In 1975, Congress established the SAR as a
statutory reporting requirement to Congress.5

Consistent with statute, DOD requires an acquisition program baseline at
program initiation that establishes objective and threshold values for
cost, quantity, schedule, and performance parameters. Objective values
represent what the user desires and expects. Thresholds represent the
acceptable limits to those values that, in the user's judgment, still
provide the needed capability. The acquisition program baseline is derived
from the user's performance and schedule needs and the best estimates of
total program cost consistent with projected funding.

A baseline, according to DOD acquisition guidance,6 consists of the
following:

o  	Performance parameters--The total number of performance parameters
should be the minimum number needed to characterize the major drivers of
operational performance. The number and specificity of performance
parameters may change over time.

o  	Schedule parameters--Schedule parameters should include, at a minimum,
the projected dates for program initiation, other major decision points,
and initial operating capability. The program manager may propose, and the
milestone decision authority7 may approve, other

critical system events.

o  	Cost parameters--Cost parameters should reflect realistic cost
estimates of the total program and/or increment, and should be identified
as life-cycle cost. The elements of program life-cycle cost include

o  research, development, test, and evaluations;

o  procurement costs;

o  military construction costs;

o  acquisition-related operations and maintenance costs, if any;

5 Public Law 94-106, S: 811.

6 Defense Acquisition Guidebook, dated 2004, Chapter 2.1.1, The
Acquisition Program Baseline.

7 The milestone decision authority is a designated DOD individual with the
authority to approve entry of an acquisition program into the next phase
of the acquisition process and is accountable for cost, schedule, and
performance reporting to higher authority, including congressional
reporting.

o  	total system quantity (to include both fully configured development
and production units);

o  	average procurement unit cost (defined as total procurement cost
divided by total procurement quantity);

o  	program acquisition unit cost (defined as the total of all
acquisitionrelated appropriations divided by the total quantity of fully
configured end items); and

o  	any other cost objectives established by the milestone decision
authority.

The defense acquisition management framework defines the stages through
which typical programs proceed. As each stage concludes, a decision must
be made to initiate, continue, advance, adjust, or terminate a project or
program work effort or phase. The review associated with each of these
decision points typically addresses program progress and risk,
affordability, program trade-offs, acquisition strategy updates, and the
development of exit criteria for the next phase or effort. The milestone
decision authority is responsible for approving the program structure as
part of the acquisition strategy. Milestone decision points are Milestone
A, for entry into the technology development phase; Milestone B, for entry
into the system development and demonstration phase (acquisition program
initiation); and Milestone C, for entry into the production and deployment
phase.

There are three fixed acquisition program baselines (APB) tied to these
milestone decisions. The concept baseline approved at Milestone A; the
development baseline approved at Milestone B; and the production baseline
approved at Milestone C. This first full estimate, generally established
at Milestone B, is sometimes referred to as the original business case for
the program. All estimates include a mix of both sunk and projected
remaining costs.

Programs are rebaselined based on a change in requirements, a change in
acquisition phase, or a program restructuring. They are also rebaselined
when there is a realized cost overrun or schedule slip beyond certain
thresholds. Rebaselining can occur at any time and cover any phase of the
defense acquisition program. All rebaselines must be approved by the
milestone decision authority. A program may therefore have several
approved program baselines during development, but only one currently
approved program baseline. Programs also monitor a current estimate of the
elements of a baseline and report differences as they develop.

Recognizing the need to establish a monitoring mechanism to provide
oversight of cost growth in DOD major defense acquisition programs,
Congress has required8 DOD to (1) notify Congress whenever unit cost
growth is at least 15 percent, and (2) "certify" the program to Congress
when the unit cost growth is at least 25 percent above the latest approved
acquisition program baseline cost estimate.9 However, Congress did not
require DOD to report when a program has been rebaselined.

The reporting requirement is commonly referred to as Nunn-McCurdy, after
the congressional leaders responsible for the requirement.10 Exceeding
either the 15 or 25 percent unit cost threshold is referred to as a
Nunn-McCurdy unit cost breach. The unit cost reporting includes two
elements-program acquisition unit cost (PAUC) and procurement unit cost
(PUC). 11 DOD refers to the PUC as the average procurement unit cost
(APUC). Unit cost is considered a key measure because it describes buying
power-the average cost to buy each unit.

Unit cost information is submitted to Congress in DOD's annual
comprehensive SARs. In addition to the comprehensive annual report to
Congress for the period ending December 31, DOD also prepares a quarterly
report for the second, third, and fourth quarters of the fiscal year when
there has been

o  	an increase of 15 percent or greater in the current estimate of the
program acquisition unit cost or average procurement unit cost in baseyear
dollars;

8 10 U.S.C. S: 2433.

9 A breach of the 25 percent threshold requires the Secretary of Defense
to certify that the program is (1) essential to national security, (2) no
alternatives exist which will provide equal or greater military capability
at less cost, (3) new unit acquisition or procurement cost estimates are
reasonable, and (4) the management structure is adequate to control unit
cost.

10 This requirement became permanent law in 1982 in Public Law 97-252, S:
1107.

11 In essence, PAUC includes both the total costs and total quantities,
while PUC only includes procurement costs and procurement quantities. By
law, PAUC is an amount equal to the total cost for development and
procurement of, and system specific military construction for, the
acquisition program divided by the number of fully configured end items to
be produced and PUC is the amount equal to the total of all funds
programmed to be available for obligation for procurement for the program
divided by the number of fully configured end items to be procured. 10
U.S.C. S: 2432(a) (1) and (2).

o  	a 6-month or greater delay in the current estimate of any schedule
milestone since the current estimate of the previous report; or

o  	a milestone B or C and associated acquisition program baseline
approval within 90 days prior to the quarterly report as of that date.

  Information for Congress on Unit Cost Performance Could Be More Complete

DOD could be reporting more complete information on unit cost performance
to Congress for its authorization and appropriations deliberations. A new
baseline serves an important management control purpose when program goals
are no longer achievable, because it presents an important perspective on
the program's current status and acquisition strategy. However, by
comparing the latest unit cost estimate with the most recent approved
baseline, DOD provides an incomplete perspective on a program's
performance because a rebaseline shortens the period of performance
reported and resets the measurement of cost growth to zero. In providing
information to Congress, DOD does not measure and report two meaningful
perspectives-cumulative unit cost growth in constant dollars and the
change in unit cost between one budget request and the next. In its SARs,
DOD also does not present how unit cost growth is adjusted for
Nunn-McCurdy determinations when a rebaselining reduces the number of
units to be procured or increases system capabilities. Current reporting
policies and practices could be improved to provide more useful
information to decision makers and strengthen accountability for
performance.

    Cumulative Unit Cost Changes Are Not Measured and Reported in Constant
    Dollars

DOD does not measure and report cumulative unit cost growth in constant
dollars. Cumulative cost data provides an important perspective because it
reflects changes and performance over the life of a program--from the
first full estimate, when the business case was first made to Congress, to
the present. Measuring change in constant dollars removes the effects of
inflation, which are beyond the control of individual programs, and is
used to measure real program cost growth.

DOD reports to Congress on the unit cost growth of programs in two
different sections of the SAR. One section reports the current estimate
against the latest approved baseline in both then-year and constant
dollars. However, because of rebaselining, the latest approved baseline
may be in place for only a short period of time and the measurement of
unit cost growth is reset to zero. The other section reports the
cumulative historical change only in then-year dollars, which includes the
effects of inflation.

Rebaselining can occur during each phase of acquisition, sometimes
frequently on individual programs. For example, in 2003, DOD reported on
81 programs; of this number, 49 or (60 percent) had multiple rebaselinings
over the life of the program. Table 1 provides examples of the highest
number of rebaselinings in individual DOD acquisition programs.

            Table 1: Examples of the Highest Number of Rebaselinings

      Program     Year of program     Date of latest                Number of 
                       start            rebaseline                rebaselines 
      F/A-22                  1992            04/01/2004 
      DDG 51                  1988            08/31/2002 
SM-2 Block IV              1993            08/04/1999 
      SSN-21                  1988            04/19/2000 

Source: GAO analysis of DOD data.

As illustrated in table 2, DOD reports unit cost growth in constant
dollars only for the most recent period of performance. It does not
present a full history of a program's unit cost growth in a single
document. For example, DOD reported in the December 2003 SAR that the
Marine Corps' H-1 helicopter upgrade program's unit cost has shrunk by 1
percent in the last 20 months; however, DOD did not report that the
program's unit cost had, in constant dollars, doubled in the last 87
months.

Table 2: Examples Showing Cumulative Changes to Unit Cost Not Reported, in
                                Constant Dollars

Reported to Congress Not reported to Congress change based on latest APB
change based on original APB

                        Percentage of Time elapsed Percentage of Time elapsed 
         Program          APUC change (in months)   APUC change   (in months) 
          AMRAAM               (3.71)           87        125.52 
     AAWS-M (Javelin)            4.14           34        207.87 
           FMTV                (4.67)            7        154.52 
    USMC H-1 Upgrades           (.98)           20        101.52           87 
    V-22 Vertical Lift           6.00           20        132.46          212 
         Aircraft                                                
          F/A-22                (.33)            4         72.40          143 

Source: GAO analysis of 2003 SAR data.

DOD reports in another section of the SAR the cumulative unit cost change,
but only in then-year dollars which includes the effects of inflation. The
statute that requires submission of SARs to Congress calls for reporting
the history of the Program Acquisition Unit Cost and the

Procurement Unit Cost from the date the program was first included in the

SAR to the end of the quarter for which the current SAR is submitted. 12
Determining the change in constant dollars, which removes the effects of
inflation, provides more meaningful data. For example, as shown in table
3, the unit cost growth reported to Congress for the F/A-18E/F was almost
zero percent because it was presented in then-year dollars. DOD did not
report that the costs increased by more than one-third, once the effects
of inflation are removed.

Table 3: F/A-18E/F Effects of Inflation on Reporting Cost Changes

                              Dollars in millions

Reported to Congress Not reported to Congress PAUC in then-year dollars
PAUC in 2005 dollars

                       Development estimate $94.58 $70.20

                          Current estimate 94.90 96.01

                         Percentage change 0.003 36.78

                   Source: GAO analysis of the F/A-18E/F SAR.

    Year-to-Year Unit Cost Changes Are Not Measured and Reported

DOD does not measure and report the changes in unit cost between the
latest budget request and the prior budget. Between the 2004 and 2005
budget requests, DOD rebaselined 7 of the 81 major defense acquisition
programs. When DOD rebaselined these programs, it reset the cost growth to
zero. For example, the Stryker armored vehicle program reported a little
over 1 percent unit cost growth in the 2 months since it rebaselined, but
DOD did not report the meaningful perspective that the program experienced
a 20 percent growth between annual budget requests. (Table 4 illustrates
the differences in program acquisition unit cost when annual changes are
not reported.)

12 10 U.S.C. S: 2432(c) (1).

 Table 4: Illustration of Differences in PAUC Calculations When Annual Changes
                                   Are Shown

Reported to Congress Current estimate compared to Current estimate
compared to latest APB prior year estimate

Not Reported to Congress

                        Percentage of Time elapsed Percentage of Time elapsed 
         Program         PAUC Change  (in months)   PAUC change   (in months) 
    Advanced Extremely                                           
           High                                                  
Frequency Satellites          2.78          1.5         49.88 
       FA-22 Raptor               0.0            3         27.39 
         Stryker                 1.34            2         20.97 
     Force XXI Battle                                            
         Command                  0.0          2.5         72.79 

Source: GAO analysis of 2002 and 2003 SAR data.

    In Some Cases, DOD Reduces the Magnitude of Unit Cost Growth for
    Nunn-McCurdy Determinations

Congress established unit cost as a key measure of buying power-the
average cost to buy each unit. Congress also established the Nunn-McCurdy
cost increase thresholds of 15 percent and 25 percent for unit cost growth
that require detailed reporting. As defined by law, unit costs are
determined by dividing total cost by total quantities.13 If quantities
decrease but costs stay the same or do not decrease proportionately, unit
costs would necessarily increase.

For determining Nunn-McCurdy breaches, DOD policy14 allows the exclusion
of the unit cost increases associated with reductions in quantity or
increases in capabilities on individual programs. DOD refers to these
actions as programmatic adjustments, which require the approval of a new
acquisition program baseline. DOD believes that these adjustments clarify
legitimate cost growth and applies its exclusion policy to determine all
Nunn-McCurdy breaches.

By making these adjustments, DOD reduced the number and the magnitude of
unit cost increases reported to Congress that would have otherwise
exceeded the Nunn-McCurdy thresholds. The effects of these adjustments are
generally not visible in the reports to Congress. As a result, Congress
may not be getting the information it sought on program buying power in
requiring unit cost reporting.

13 This reflects the definitions of program acquisition and procurement
unit cost in 10 U.S.C. S: 2432(a).

14 DOD issued this policy in February 1995 and reaffirmed it in 2001.

For example, as seen in table 5, in December 2002, the Comanche Helicopter
program experienced a PAUC growth of about 62 percent over 27 months.
However, after excluding the unit cost increases associated with a program
restructure and a reduction in quantity of 561 aircraft,15 DOD reported a
Nunn-McCurdy breach of 18 percent, less than the 25 percent threshold that
would have triggered a certification. DOD explained that the 18 percent
cost growth was driven by weight growth, functionality changes, overhead
rates, and estimating differences. The quantity reduction accounted for
the other 44 percent of the cost growth.

Table 5: Example of the Impact of Programmatic Adjustments in the Comanche
                               Helicopter Program

                              Dollars in millions

Program acquisition unit cost  Baseline Current estimate Percentage change 
            Total cost           $37,936.1        $32,903.5 
             Quantity                1,213              650 
             Unit cost             $31.275          $50.621             61.86 

Source: GAO analysis of the December 2002 SAR.

DOD would have reported or would have had to certify many more
Nunn-McCurdy breaches if not for the adjustments made to unit cost growth
to account for reduced quantities or increased capabilities. The number of
programs that would have had Nunn-McCurdy breaches reported to Congress
between fiscal years 2001 and 2003 would have increased by about 50
percent-from 17 to 25 programs. The number of programs that reported a
breach of the 25 percent threshold, which requires a formal certification
by the Secretary of Defense to Congress, would have increased by 90
percent, going from 10 to 19 programs during the same period. Three of
those programs-the Joint Strike Fighter, Comanche, and the MH-60R-reported
breaching the 15 percent level. These three programs notified Congress of
an APUC breach and therefore also reported the PAUC changes. Other than
those three programs, the adjustments made to unit costs in table 6 were
not disclosed in the relevant SAR. For example, the Bradley Upgrade
program experienced a PAUC growth of 16 percent, but reported to Congress
a 0.4 percent PAUC reduction. (Table 6 below shows the full unit cost
growth and the adjusted unit cost growth used to determine breaches of
Nunn-McCurdy thresholds.)

15 DOD excluded two prototype helicopters from the total quantity.

Table 6: PAUC growth and Nunn-McCurdy Determinations from 2001 to 2003, in
Percent

                              Full PAUC growth PAUC Nunn-McCurdy  PAUC growth 
                                                    Breach       
        Program      Year     (not reported to   (reported to    (reported to 
                                    Congress )     Congress)        Congress) 
     Joint Strike    2003                26.22              19.4         Both 
        Fighter                                                  
         FBCB2       2003                 73.2                No 
        Stryker      2003                 25.2                No 
       Comanche      2002                61.86                23         Both 
         AEHF        2002                 52.4                No        -2.78 
    Bradley upgrade  2002                 16.1                No 
        F/A-22       2002                 15.7                No 
          NAS        2002                 37.4                No 
       B-1 CMUP      2001                42.04                No 
MH-60R Helicopter 2001                27.97                19         Both 
      Global Hawk    2001                 69.7                No 

  Reporting of Rebaselinings Could Be More Timely and Unclassified Data Is
  Unnecessarily Restricted

Source: GAO analysis of DOD data.

DOD could be more timely in reporting to Congress that it has rebaselined
individual programs. Although DOD's time lines for reporting program
acquisition breach data to Congress are consistent with statute, in most
instances the establishment of a new baseline is not reported to Congress
until months after the rebaseline has occurred. A key factor here is DOD
is not required by statute or its own policies to report a program's
rebaseline to Congress.

DOD typically reports the latest program rebaseline information in its
December SAR, which is actually submitted to Congress the following April.
Sometimes data can arrive for congressional consideration as much as 12
months after a program has rebaselined. Between the April 2003 and the
April 2004 SARs to Congress, DOD rebaselined 9 programs and on average
these rebaselines were not reported for 6 months. Between 1996 and 2003
about two-thirds of the rebaselinings occurred between April and December.
A new baseline approved after early April may not be reported to Congress
before the enactment of authorization and appropriations legislation.

For example, the DD(X) Destroyer program established a new baseline on
April 23, 2002, but did not report this new baseline to Congress in a SAR
until April 2003. As result, between the April 2002 and the passage of the
fiscal year 2003 defense budget, the SAR provided to Congress did not

reflect the approved baseline for the DD(X) program. (Table 7 shows
instances of the time lag in reporting rebaselines to Congress.)

Table 7: Examples of the Longest Time Lags in Reporting Program
Rebaselines to Congress

                                   Date new Date rebaseline  Lag time between 
                                   baseline    available to      rebaselining 
             Program               approved Congress in the and reporting (in 
                                                        SAR           months) 
     Bradley Fighting Vehicle                               
              system                                        
             upgrade             08/04/1997      April 1998 
      CH-47 Cargo Helicopter     07/26/2002      April 2003 
LPD-17 Amphibious Transport                              
            Dock Ship            06/04/2002      April 2003 
    Family of medium tactical                               
             vehicles            05/26/1999      April 2000 
      Minuteman III Guidance                                
       Replacement Program       05/12/1997      April 1998 
       AV 8B remanufacture       04/10/1998      April 1999 
         DD(X) Destroyer         04/23/2002      April 2003 
        Strategic sealift        04/10/1998      April 1999 
     National Polar-Orbiting                                
    Operational Environmental                               
         Satellite System        04/19/1999      April 2000 
     National airspace system    04/22/1998      April 1999 

Source: GAO analysis of DOD data.

In addition, the accessibility of unclassified SAR data is unnecessarily
restricted. DOD classified about 50 percent of the SARs it submitted to
Congress in 2003, involving a total acquisition investment of $454
billion. However, only a small amount of data contained in each classified
SAR is actually classified. The classified data is generally only one of
the eighteen sections in a report-performance characteristics. Performance
characteristics include such items as speed, range, and reliability.
Because these SARs are classified, special handling procedures must be
used by those congressional staff with the appropriate clearances even to
access the unclassified cost and schedule data. This practice also
completely blocks access for those staff without clearances to the
unclassified cost and schedule data. As a result, congressional oversight
of DOD's adherence to established cost and schedule baselines is
unnecessarily constrained.

Conclusions

Recommendations for Executive Action

Congress faces hard choices in trying to balance competing demands for
funds for major defense acquisition programs and for ongoing defense
operations as well as for increasing levels of funding needed for other
federal programs. A number of opportunities exist for DOD to give Congress
more complete information on the performance of major defense acquisition
programs for its oversight and decision-making responsibilities. Although
DOD has provided unit cost data required by law, DOD would better capture
the true nature of program performance by also measuring and reporting
unit cost changes in constant dollars using cumulative and year-to-year
perspectives. Basic data to measure and report such changes is already
collected. To provide these additional perspectives, DOD would have to
make the necessary comparisons and present them in the SARs.16

Because of DOD's policy to adjust unit cost growth when determining
Nunn-McCurdy breaches by excluding the costs associated with reductions in
quantities or increases in capabilities, Congress is not receiving
information on the full extent of unit cost growth for these programs.
Therefore, DOD should fully disclose the nature and extent of these
adjustments. Congress may also wish to determine the appropriateness of
these adjustments.

Other changes would result in more timely and accessible reporting of unit
cost data. One would be to inform Congress when a rebaselining action
occurs, without issuing a new SAR and the other would be to separate the
reporting of classified and unclassified information.

To provide Congress with more complete, timely, and accessible
information, we recommend that the Secretary of Defense implement the
following four recommendations in the department's reporting of data on
major defense acquisition program baselines (APB) and performance

o  	measure and report a full history of unit cost performance in constant
dollars by comparing the latest cost and quantity estimates with:

16 Whenever the Secretary of Defense proposes to make changes in the
content of the SAR, the Secretary is required by 10 U.S.C. S: 2343(c) (2)
to first notify the Senate and House Armed Services Committees. The
changes may be considered approved by the Secretary and incorporated into
the report only after the end of the 60 day period following the
notification.

Matters for Congressional Consideration

  Agency Comments and Our Evaluation

o  	the first full estimate (typically the original acquisition program
baseline established at Milestone B);

o  	the current approved program baseline or, if the program rebaselines,
the prior approved program baseline; and

o  the estimate established with the previous year's budget request.

o  	fully disclose to Congress the nature and extent of programmatic
adjustments affecting Nunn-McCurdy threshold determinations, pending any
congressional direction on this issue;

o  notify Congress when rebaselining actions are approved; and

o  separately report classified and unclassified SAR information.

DOD's policy of excluding the effects of quantity reductions or capability
increases in determining unit cost breaches of Nunn-McCurdy thresholds may
not provide Congress the information it sought on program buying power in
requiring unit cost reporting. Therefore, Congress may wish to consider
whether DOD's use of these programmatic adjustments is appropriate.

In written comments on a draft of this report, DOD concurred with our
recommendations. DOD also provided us with technical comments, which we
have incorporated as appropriate. DOD expressed concern that the report
could be misinterpreted to imply that DOD is not fully complying with
statutory reporting requirements. As a result, with the exception of the
issue of programmatic adjustments, we have clarified the language of the
report to focus on the benefits to Congress of providing more complete
information, beyond what the law currently requires. In the case of the
programmatic adjustments, we believe that Congress may wish to determine
whether DOD is providing it with the information it sought on buying power
when it required unit cost reports. Their written comments to our
recommendations appear in appendix II.

On our first recommendation, DOD stated that a unit cost comparison in
constant dollars from the current estimate back to multiple reference
points (i.e., Milestone B, approved APB, and previous year's President
budget) would be more useful than what is currently being reported to
Congress. DOD agreed to make these comparisons and also stated that it
will inform the Congress of this change in the SAR content.

On our second recommendation, DOD acknowledged that it has been excluding
programmatic changes from Nunn-McCurdy unit cost breach determinations
since February 1995, just after the Federal Acquisition Streamlining Act
established the APB as the Nunn-McCurdy unit cost baseline. DOD agreed
with GAO that the programmatic impacts to unit cost are not entirely clear
in the SAR as currently reported and agreed to provide full details of
programmatic adjustments in future reports to the Congress. DOD stated
that it will inform the Congress of this change in the SAR content.

On our third recommendation, DOD stated that notification of revised APBs
could be accomplished if Congress so requests. While we are not advocating
that a SAR be generated to notify the Congress when a major defense
acquisition program is rebaselined, we remain convinced that DOD should
initiate notification via an appropriate medium to the Congress whenever
these programs are rebaselined.

We are sending copies of this report to the Secretary of Defense and other
interested parties. We will also provide copies to others on request. In
addition, the report will be available at no charge on the GAO Web site at
http://www.gao.gov.

Should you or your staff have any questions on matters discussed in this
report, please contact me on (202) 512-4841 or David Best, Assistant
Director, at (202) 512-8078. Principal contributors to this report were
Leon
S. Gill, Danny Owens, Adam Vodraska, Robert Swierczek, Wendy Smythe,
Tana Davis, and Judy Lasley.

Robert E. Levin
Director, Acquisition and Sourcing Management

                       Appendix I: Scope and Methodology

To evaluate to what extent DOD's use of rebaselining affected the adequacy
of data provided to Congress on the performance of major defense
acquisition programs, we relied on the Federal Internal Control Standards
to assess the comprehensiveness, timeliness, accessibility, and
appropriateness of the contents of data provide by DOD to Congress. Due to
the classified nature of most defense system's performance parameters, our
analysis of rebaselining did not include the baseline system's operational
performance parameters. We reviewed pertinent statutes, such as 10 U.S.C.
S: 2432 (SAF), S: 2433 (Unit Cost Reports), and S: 2435 (Baseline
Description) and DOD acquisition system guidance, both the current version
and proposed revisions. We analyzed more than 650 SARs, both quarterly and
annual reports covering an 8 year period from 1996 to 2003, to determine
which program had growth that exceeded DOD's internal 10percent or the
Nunn-McCurdy 15-and 25-percent thresholds. We arrayed the data extracted
from these reports to show all program breaches and rebaselines by
service, programs, breach types, and year. To assess the reliability of
the data contained in the SARs, we used the standardized GAO data
reliability interview template to interview cognizant DOD officials from
the office of the Under Secretary of Defense for Acquisition, Technology,
and Logistics (Acquisition Resources and Analysis). After reviewing DOD's
management controls in place for assessing data reliability, we concluded
that management controls were adequate and the data was sufficiently
reliable for our engagement purposes. Further, we also interviewed
cognizant DOD officials in Washington, D.C., from the offices of the Under
Secretary of Defense for Acquisition, Technology, and Logistics
(Acquisition Resources and Analysis); Program Analysis and Evaluation;
Cost Analysis Improvement Group (Weapons System Cost Analysis Division);
and Office of General Counsel. We conducted our review between February
2004 and January 2005 in accordance with generally accepted government
auditing standards.

Appendix II: Comments from the Department of Defense

Note: Page numbers in the draft report may differ from those in this
report.

Appendix II: Comments from the Department of Defense

Appendix II: Comments from the Department of Defense

Appendix II: Comments from the Department of Defense

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