Defense Acquisitions: Better Weapon Program Outcomes Require	 
Discipline, Accountability, and Fundamental Changes in the	 
Acquisition Environment (03-JUN-08, GAO-08-782T).		 
                                                                 
Since 1990, GAO has designated the Department of Defense's (DOD) 
management of major weapon system acquisitions a high risk area. 
DOD has taken some action to improve acquisition outcomes, but	 
its weapon programs continue to take longer, cost more, and	 
deliver fewer capabilities than originally planned. These	 
persistent problems--coupled with current operational		 
demands--have impelled DOD to work outside of its traditional	 
acquisition process to acquire equipment that meet urgent	 
warfighter needs. Poor outcomes in DOD's weapon system programs  
reverberate across the entire federal government. Over the next 5
years, DOD plans to invest about $900 billion to develop and	 
procure weapon systems--the highest level of investment in two	 
decades. Every dollar wasted on acquiring weapon systems is less 
money available for other priorities. This testimony describes	 
DOD's current weapon system investment portfolio, the problems	 
that contribute to cost and schedule increases, and the potential
impacts of recent legislative initiatives and DOD actions aimed  
at improving outcomes. It also provides some observations about  
what is needed for DOD to achieve lasting reform. The testimony  
is drawn from GAO's body of work on DOD's acquisition,		 
requirements, and funding processes, as well as its most recent  
annual assessment of selected DOD weapon programs.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-782T					        
    ACCNO:   A82246						        
  TITLE:     Defense Acquisitions: Better Weapon Program Outcomes     
Require Discipline, Accountability, and Fundamental Changes in	 
the Acquisition Environment					 
     DATE:   06/03/2008 
  SUBJECT:   Accountability					 
	     Cost analysis					 
	     Cost control					 
	     Cost overruns					 
	     Defense capabilities				 
	     Defense contingency planning			 
	     Defense cost control				 
	     Defense industry					 
	     Defense operations 				 
	     Defense procurement				 
	     Funds management					 
	     Investment planning				 
	     National defense operations			 
	     Policy evaluation					 
	     Procurement policy 				 
	     Program management 				 
	     Risk management					 
	     Schedule slippages 				 
	     Strategic planning 				 
	     Systems analysis					 
	     Systems evaluation 				 
	     Systems management 				 
	     Weapons research and development			 
	     Weapons systems					 
	     Program costs					 
	     Program goals or objectives			 
	     Program implementation				 
	     Waste, fraud, and abuse				 
	     GAO High Risk Series				 

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GAO-08-782T

This is the accessible text file for GAO report number GAO-08-782T 
entitled 'Defense Acquisitions: Better Weapon Program Outcomes Require 
Discipline, Accountability, and Fundamental Changes in the Acquisition 
Environment' which was released on June 3, 2008.

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Testimony: 

Before the Committee on Armed Services, U.S. Senate: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 9:30 a.m. EDT:
Tuesday, June 3, 2008: 

Defense Acquisitions: 

Better Weapon Program Outcomes Require Discipline, Accountability, and 
Fundamental Changes in the Acquisition Environment: 

Statement of Katherine V. Schinasi, Managing Director: 
Acquisition and Sourcing Management: 

GAO-08-782T: 

GAO Highlights: 

Highlights of GAO-08-782T, a testimony before the Committee on Armed 
Services, U.S. Senate. 

Why GAO Did This Study: 

Since 1990, GAO has designated the Department of Defenseï¿½s (DOD) 
management of major weapon system acquisitions a high risk area. DOD 
has taken some action to improve acquisition outcomes, but its weapon 
programs continue to take longer, cost more, and deliver fewer 
capabilities than originally planned. These persistent problemsï¿½coupled 
with current operational demandsï¿½have impelled DOD to work outside of 
its traditional acquisition process to acquire equipment that meet 
urgent warfighter needs. 

Poor outcomes in DODï¿½s weapon system programs reverberate across the 
entire federal government. Over the next 5 years, DOD plans to invest 
about $900 billion to develop and procure weapon systemsï¿½the highest 
level of investment in two decades. Every dollar wasted on acquiring 
weapon systems is less money available for other priorities. 

This testimony describes DODï¿½s current weapon system investment 
portfolio, the problems that contribute to cost and schedule increases, 
and the potential impacts of recent legislative initiatives and DOD 
actions aimed at improving outcomes. It also provides some observations 
about what is needed for DOD to achieve lasting reform. The testimony 
is drawn from GAOï¿½s body of work on DODï¿½s acquisition, requirements, 
and funding processes, as well as its most recent annual assessment of 
selected DOD weapon programs. 

What GAO Found: 

DODï¿½s portfolio of weapon system programs has grown at a pace that far 
exceeds available resources. From 1992 to 2007, the estimated 
acquisition costs remaining for major weapons programs increased almost 
120 percent, while the annual funding provided for these programs only 
increased 57 percent. Current programs are experiencing, on average, a 
21-month delay in delivering initial capabilities to the 
warfighterï¿½often forcing DOD to spend additional funds on maintaining 
legacy systems. 

Systemic problems both at the strategic and at the program level 
underlie cost growth and schedule delays. At the strategic level, DODï¿½s 
processes for identifying warfighter needs, allocating resources, and 
developing and procuring weapon systemsï¿½which together define DODï¿½s 
overall weapon system investment strategyï¿½are fragmented and broken. At 
the program level, weapon system programs are initiated without 
sufficient knowledge about system requirements, technology, and design 
maturity. Lacking such knowledge, managers rely on assumptions that are 
consistently too optimistic, exposing programs to significant and 
unnecessary risks and ultimately cost growth and schedule delays. At 
the same time, frequent turnover of program managers and an increased 
reliance on contractors increases the governmentï¿½s risk of losing 
accountability. 

Recognizing the need for more discipline and accountability in the 
acquisition process, Congress recently enacted legislation part of 
which requires decision-makers to certify that programs meet specific 
criteria at key decision points early in the acquisition process. 
Likewise, DOD has recently begun to develop several initiatives that 
are based in part on congressional direction and GAO recommendations. 
If adopted and implemented properly, these measures could provide a 
foundation for establishing a well balanced investment strategy, sound 
business cases for major weapon system acquisition programs, and a 
better chance to spend resources wisely. 

While legislation and policy revisions can help guide change, DOD must 
begin making better choices that reflect joint capability needs and 
match requirements with resources or the department will continue to 
experience poor acquisition outcomes. DOD investment decisions continue 
to be dictated by the services who propose programs that overpromise 
capabilities and underestimate costs to capture the funding needed to 
start and sustain development programs. The transitory nature of 
leadership further undermines successful reform. To better ensure 
warfighter capabilities are delivered when needed and as promised, 
incentives must encourage a disciplined, knowledge-based approach, and 
a true partnership with shared goals must be developed among the 
department, the military services, the Congress, and the defense 
industry. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-782T]. For more 
information, contact Katherine V. Schinasi at (202) 512-4841 or 
[email protected]. 

[End of section] 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss the Department of Defense's 
(DOD) management of its major weapon system acquisitions--an area that 
has been on GAO's high risk list since 1990. Prior to and since that 
time, Congress and DOD have continually explored ways to improve 
acquisition outcomes without much to show for their efforts. DOD's 
major weapon system programs continue to take longer, cost more, and 
deliver fewer quantities and capabilities than originally planned. 
Current operational demands have highlighted the impact of these 
persistent problems as DOD has been forced to work outside of its 
traditional acquisition process to acquire equipment that meet 
warfighter needs. 

Investment in weapons acquisition programs is now at its highest level 
in two decades. The department expects to invest about $900 billion 
(fiscal year 2008 dollars) over the next 5 years on development and 
procurement with more than $335 billion invested specifically in major 
defense acquisition programs. Given the size of this investment, poor 
outcomes in DOD's weapon system programs reverberate across the entire 
federal government. Every dollar wasted during the development and 
acquisition of weapon systems is money not available for other internal 
and external budget priorities--such as the war on terror and mandatory 
payments to growing entitlement programs. 

My statement today is drawn from our body of work on DOD's acquisition, 
requirements, and funding processes, as well as our annual assessment 
of selected DOD weapon programs. As you requested, I will focus on (1) 
the performance of DOD's major defense acquisition program portfolio; 
(2) the underlying systemic problems that contribute to poor cost and 
schedule outcomes; (3) recent legislative initiatives and DOD actions 
aimed at addressing these problems; and (4) the extent to which those 
initiatives and actions can be expected to improve the future 
performance of DOD's major defense acquisition programs. Our work was 
conducted in May 2008 in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. 

Summary: 

Since fiscal year 2000, DOD significantly increased the number of major 
defense acquisition programs and its overall investment in them. During 
this same time period, acquisition outcomes have not improved. Based on 
our analysis, total acquisition costs for the fiscal year 2007 
portfolio of major defense acquisition programs increased 26 percent 
and development costs increased by 40 percent from first estimates-- 
both of which are higher than the corresponding increases in DOD's 
fiscal year 2000 portfolio. In most cases, the programs we assessed 
failed to deliver capabilities when promised--often forcing warfighters 
to spend additional funds on maintaining legacy systems. Our analysis 
shows that current programs are experiencing, on average, a 21-month 
delay in delivering initial capabilities to the warfighter, a 5-month 
increase over fiscal year 2000 programs. 

Several underlying systemic problems at the strategic level and at the 
program level continue to contribute to poor weapon system program 
outcomes. At the strategic level, DOD does not prioritize weapon system 
investments and the department's processes for matching warfighter 
needs with resources are fragmented and broken. Furthermore, the 
requirements and acquisition processes are not agile enough to support 
programs that can meet current operational requirements. At the program 
level, programs are started without knowing what resources will truly 
be needed and are managed with lower levels of product knowledge at 
critical junctures than expected under best practices standards. In the 
absence of such knowledge, managers rely heavily on assumptions about 
system requirements, technology, and design maturity, which are 
consistently too optimistic. This exposes programs to significant and 
unnecessary technology, design, and production risks, and ultimately 
damaging cost growth and schedule delays. DOD officials are rarely held 
accountable for these poor outcomes and the acquisition environment 
does not provide the appropriate incentives for contractors to stay 
within cost and schedule targets, making them a strong enabler of the 
status quo. 

Recent congressionally mandated changes to the DOD acquisition system, 
as well as initiatives being pursued by the department, include 
elements that could improve DOD's overall investment strategy and the 
soundness of the programs it allows to move forward. However, it is 
still too early to determine the impact those changes have had on 
programs. Recognizing the need for more discipline and accountability 
in the acquisition process, Congress enacted legislation that requires 
decision-makers to certify that programs meet specific criteria at key 
decision points early in the acquisition process, and are measured 
against their original baseline estimates for the purpose of assessing 
and reporting unit cost growth. Recent legislation also requires DOD to 
report on its strategies for balancing the allocation of funds and 
other resources among major defense acquisition programs and to 
identify strategies for enhancing the role of program managers in 
carrying out acquisition programs. DOD has begun several policy 
initiatives including a new concept decision review initiative, 
acquisition approaches with shorter and more certain delivery time 
frames, a requirement for more prototyping early in programs, and the 
establishment of review boards to monitor weapon system configuration 
changes, which are designed to enable key department leaders to make 
informed decisions before a program starts and maintain discipline once 
it begins. 

While legislation and policy revisions can help guide change, DOD must 
begin making better choices that reflect joint capability needs and 
match requirements with resources or the department will continue to 
experience poor acquisition outcomes. DOD and the military services 
cannot continue to view success through the prism of securing the 
funding needed to start and sustain new programs. Sound programs should 
be the natural outgrowth of a disciplined knowledge-based process. 
DOD's policy emphasizes the importance of a knowledge-based approach, 
but practice does not always follow policy. The transitory nature of 
leadership and the stovepiped process further undermines successful 
reform. Meaningful and lasting reform will not be achieved until the 
right incentives are established and accountability is bolstered at all 
levels of the acquisition process--both within the department and in 
the defense industry. Finally, unless all of the players involved with 
acquisitions--the Congress, DOD, and perhaps most importantly, the 
military services--have unified goals, outcomes are not likely to 
improve. 

DOD Has Too Many Acquisition Programs Competing for Limited Resources, 
while Program Costs and Schedules Continue To Increase: 

DOD's portfolio of major acquisition programs has grown at a pace that 
far exceeds available resources. From 1992 to 2007, the estimated 
acquisition costs needed to complete the major acquisition programs in 
DOD's portfolio increased almost 120 percent, while the funding 
provided for these programs only increased 57 percent, creating a 
fiscal bow wave that may be unsustainable (see fig. 1). 

Figure 1: Costs Remaining Versus Annual Appropriations for Major 
Defense Acquisitions (Dollars in billions): 

[See PDF for image] 

Fiscal year: 1992; 
Annual RDTE and Procurement Appropriations: $100; 
Costs Remaining for Major Defense Acquisitions: $324. 

Fiscal year: 1993; 
Annual RDTE and Procurement Appropriations: $91; 
Costs Remaining for Major Defense Acquisitions: $271. 

Fiscal year: 1994; 
Annual RDTE and Procurement Appropriations: $79; 
Costs Remaining for Major Defense Acquisitions: $253. 

Fiscal year: 1995; 
Annual RDTE and Procurement Appropriations: $78; 
Costs Remaining for Major Defense Acquisitions: $341. 

Fiscal year: 1996; 
Annual RDTE and Procurement Appropriations: $78; 
Costs Remaining for Major Defense Acquisitions: $345. 

Fiscal year: 1997; 
Annual RDTE and Procurement Appropriations: $79; 
Costs Remaining for Major Defense Acquisitions: $331. 

Fiscal year: 1998; 
Annual RDTE and Procurement Appropriations: $82; 
Costs Remaining for Major Defense Acquisitions: $280. 

Fiscal year: 1999; 
Annual RDTE and Procurement Appropriations: $89; 
Costs Remaining for Major Defense Acquisitions: $233. 

Fiscal year: 2000; 
Annual RDTE and Procurement Appropriations: $94; 
Costs Remaining for Major Defense Acquisitions: $309. 

Fiscal year: 2001; 
Annual RDTE and Procurement Appropriations: $104; 
Costs Remaining for Major Defense Acquisitions: $234. 

Fiscal year: 2002; 
Annual RDTE and Procurement Appropriations: $111; 
Costs Remaining for Major Defense Acquisitions: $586. 

Fiscal year: 2003; 
Annual RDTE and Procurement Appropriations: $137; 
Costs Remaining for Major Defense Acquisitions: $579. 

Fiscal year: 2004; 
Annual RDTE and Procurement Appropriations: $148; 
Costs Remaining for Major Defense Acquisitions: $722. 

Fiscal year: 2005; 
Annual RDTE and Procurement Appropriations: $165; 
Costs Remaining for Major Defense Acquisitions: $745. 

Fiscal year: 2006; 
Annual RDTE and Procurement Appropriations: $157; 
Costs Remaining for Major Defense Acquisitions: $841. 

Fiscal year: 2007; 
Annual RDTE and Procurement Appropriations: $160; 
Costs Remaining for Major Defense Acquisitions: $767. 

Source: DOD (data); GAO (analysis and presentation). 

[End of figure] 

The total acquisition cost of DOD's 2007 portfolio of major programs 
under development or in production has grown by nearly $300 billion 
over initial estimates. While DOD is committing substantially more 
investment dollars to develop and procure new weapon systems, our 
analysis shows that the 2007 portfolio is experiencing greater cost 
growth and schedule delays than the fiscal years 2000 and 2005 
portfolios (see table 1).[Footnote 1] For example, total acquisition 
costs for programs in DOD's fiscal year 2007 portfolio have increased 
26 percent from first estimates--compared to a 6-percent increase for 
programs in its fiscal year 2000 portfolio. We found a similar trend 
for total RDT&E costs and unit costs. 

Table 2: Analysis of DOD Major Defense Acquisition Program Portfolios 
(Fiscal year 2008 dollars): 

Portfolio size: Number of programs; 
Fiscal year 2000 portfolio: 75; 
Fiscal year 2005 portfolio: 91; 
Fiscal year 2007 portfolio: 95. 

Portfolio size: Total planned commitments; 
Fiscal year 2000 portfolio: $790 Billion; 
Fiscal year 2005 portfolio: $1.5 Trillion; 
Fiscal year 2007 portfolio: $1.6 Trillion. 

Portfolio size: Commitments outstanding; 
Fiscal year 2000 portfolio: $380 Billion; 
Fiscal year 2005 portfolio: $887 Billion; 
Fiscal year 2007 portfolio: $858 Billion. 

Portfolio performance: Change to total RDT&E costs from first estimate; 
Fiscal year 2000 portfolio: 27 percent; 
Fiscal year 2005 portfolio: 33 percent; 
Fiscal year 2007 portfolio: 40 percent. 

Portfolio performance: Change in total acquisition cost from first 
estimate; 
Fiscal year 2000 portfolio: 6 percent; 
Fiscal year 2005 portfolio: 18 percent; 
Fiscal year 2007 portfolio: 26 percent. 

Portfolio performance: Estimated total acquisition cost growth; 
Fiscal year 2000 portfolio: $42 Billion; 
Fiscal year 2005 portfolio: $202 Billion; 
Fiscal year 2007 portfolio: $295 Billion. 

Portfolio performance: Share of programs with 25 percent or more 
increase in program acquisition unit cost; 
Fiscal year 2000 portfolio: 37 percent; 
Fiscal year 2005 portfolio: 44 percent; 
Fiscal year 2007 portfolio: 44 percent. 

Portfolio performance: Average schedule delay in delivering initial 
capabilities; 
Fiscal year 2000 portfolio: 16 months; 
Fiscal year 2005 portfolio: 17 months; 
Fiscal year 2007 portfolio: 21 months. 

Source: GAO analysis of DOD data. 

Note: Data were obtained from DOD's Selected Acquisition Reports (dated 
December 1999, 2004, and 2006) or, in a few cases, data were obtained 
directly from program offices. Number of programs reflects the programs 
with Selected Acquisition Reports. In our analysis we have broken a few 
Selected Acquisition Report programs (such as Missile Defense Agency 
systems) into smaller elements or programs. Not all programs had 
comparative cost and schedule data, and these programs were excluded 
from the analysis where appropriate. Also, data do not include full 
costs of developing Missile Defense Agency systems. 

[End of table] 

Continued cost growth results in less funding being available for other 
DOD priorities and programs, while continued failure to deliver weapon 
systems on time delays providing critical capabilities to the 
warfighter. Put simply, cost growth reduces DOD's buying power. As 
program costs increase, DOD must request more funding to cover the 
overruns, make trade-offs with existing programs, delay the start of 
new programs, or take funds from other accounts. Delays in providing 
capabilities to the warfighter result in the need to operate costly 
legacy systems longer than expected, find alternatives to fill 
capability gaps, or go without the capability. The warfighter's urgent 
need for the new weapon system is often cited when the case is first 
made for developing and producing the system. However, DOD has already 
missed fielding dates for many programs and many others are behind 
schedule. On average, the current portfolio of programs has experienced 
a 21-month delay in delivering initial operational capability to the 
warfighter, and 14 percent are more than 4 years late. 

Fragmented Processes, Unexecutable Business Cases, and Limited 
Accountability Underlie Poor Acquisition Outcomes: 

Poor program execution contributes to and flows from shortfalls in 
DOD's requirements and resource allocation processes. Over the past 
several years our work has highlighted a number of underlying systemic 
causes for cost growth and schedule delays both at the strategic and at 
the program level. At the strategic level, DOD's processes for 
identifying warfighter needs, allocating resources, and developing and 
procuring weapon systems--which together define DOD's overall weapon 
system investment strategy--are fragmented and broken. At the program 
level, the military services propose and DOD approves programs without 
adequate knowledge about requirements and the resources needed to 
successfully execute the program within cost, schedule, and performance 
targets. In addition, DOD officials are rarely held accountable for 
poor decisions or poor program outcomes. 

Key Acquisition Support Processes Are Fragmented and Result in Unsound 
Programs: 

DOD largely continues to define war fighting needs and make investment 
decisions on a service-by-service basis, and assess these requirements 
and their funding implications under separate decision-making 
processes. While DOD's requirements process provides a framework for 
reviewing and validating needs, it does not adequately prioritize those 
needs and is not agile enough to meet changing warfighter demands. A 
senior Army acquisition official recently testified before Congress 
that because the process can take more than a year, it is not suitable 
for meeting urgent needs related to ongoing operations; and a recent 
study by the Center for Strategic and International Studies indicates 
that the process is unwieldy and officials are now trying to find ways 
to work around it. Ultimately, the process produces more demand for new 
programs than available resources can support. This imbalance promotes 
an unhealthy competition for funds that encourages programs to pursue 
overly ambitious capabilities, develop unrealistically low cost 
estimates and optimistic schedules, and to suppress bad news. 
Similarly, DOD's funding process does not produce an accurate picture 
of the department's future resource needs for individual programs--in 
large part because it allows programs to go forward with unreliable 
cost estimates and lengthy development cycles--not a sound basis for 
allocating resources and ensuring program stability. Invariably, DOD 
and the Congress end up continually shifting funds to and from 
programs--undermining well-performing programs to pay for poorly 
performing ones. 

Initiating Programs with Unexecutable Business Cases Sets Them Up to 
Fail: 

At the program level, the key cause of poor outcomes is the consistent 
lack of disciplined analysis that would provide an understanding of 
what it would take to field a weapon system before system development. 
Our body of work in best practices has found that an executable 
business case is one that provides demonstrated evidence that (1) the 
identified needs are real and necessary and that they can best be met 
with the chosen concept and (2) the chosen concept can be developed and 
produced within existing resources--including technologies, funding, 
time, and management capacity. Although DOD has taken steps to revise 
its acquisition policies and guidance to reflect the benefits of a 
knowledge-based approach, we have found no evidence of widespread 
adoption of such an approach in the department. Our most recent 
assessment of major weapon systems found that the vast majority of 
programs began development with unexecutable business cases, and did 
not attain, or plan to achieve, adequate levels of knowledge before 
reaching design review and production start--the two key junctures in 
the process following development start (see figure 2). 

Figure 1: Knowledge Achievement for Weapon System Programs in 2008 
Assessment at Key Junctures: 

[See PDF for image] 

This figure contains three pie-charts, as well as a table, with the 
following information depicted: 

Key junctures: Best practices; 
Development start: Knowledge point 1; Mature all critical technologies; 
Design review: Knowledge point 2; Achieve knowledge point 1 on time and 
complete 90 percent of engineering drawings; 
Production start: Knowledge point 3; Achieve knowledge points 1 and 2, 
and have all critical processes under statistical control. 

Key junctures: DOD outcomes[A]; 
Development start: 12 percent of programs; 
Design review: 4 percent of programs; 
Production start: 0 percent of programs[B]. 

Source: GAO analysis of DOD data. 

[A] Not all programs provided information for each knowledge point or 
had passed through all three key junctures. 

[B] In our assessment of two programs, the Light Utility Helicopter and 
the Joint Cargo Aircraft, are depicted as meeting all three knowledge 
points when they began at production start. We excluded these two 
programs from our analysis because they were based on commercially 
available products and we did not assess their knowledge attainment 
with our best practices metrics. 

[End of figure] 

Knowledge gaps are largely the result of a lack of disciplined systems 
engineering analysis prior to beginning system development. Systems 
engineering translates customer needs into specific product 
requirements for which requisite technological, software, engineering, 
and production capabilities can be identified through requirements 
analysis, design, and testing. Early systems engineering provides 
knowledge that enables a developer to identify and resolve gaps before 
product development begins. Because the government often does not 
perform the proper up-front analysis to determine whether its needs can 
be met, significant contract cost increases can occur as the scope of 
the requirements change or become better understood by the government 
and contractor. Not only does DOD not typically conduct disciplined 
systems engineering prior to beginning system development, it has 
allowed new requirements to be added well into the acquisition cycle. 
The acquisition environment encourages launching ambitious product 
developments that embody more technical unknowns and less knowledge 
about the performance and production risks they entail. A new weapon 
system is not likely to be approved unless it promises the best 
capability and appears affordable within forecasted available funding 
levels. We have recently reported on the negative impact that poor 
systems engineering practices have had on several programs such as the 
Global Hawk Unmanned Aircraft System, F-22A, Expeditionary Fighting 
Vehicle, Joint Air-to-Surface Standoff Missile and others.[Footnote 2] 

With high levels of uncertainty about technologies, design, and 
requirements, program cost estimates and related funding needs are 
often understated, effectively setting programs up for failure. We 
recently assessed the service and independent cost estimates for 20 
major weapon system programs and found that the independent estimate 
was higher in nearly every case, but the difference between the 
estimates was typically not significant. We also found that both 
estimates were too low in most cases, and the knowledge needed to 
develop realistic cost estimates was often lacking. For example, 
program Cost Analysis Requirements Description documents--used to build 
the program cost estimate--are not typically based on demonstrated 
knowledge and therefore provide a shaky foundation for estimating 
costs. Cost estimates have proven to be off by billions of dollars in 
some of the programs we reviewed. For example, the initial Cost 
Analysis Improvement Group estimate for the Expeditionary Fighting 
Vehicle program was about $1.4 billion compared to a service estimate 
of about $1.1 billion, but development costs for the system are now 
expected to be close to $3.6 billion. Estimates this far off the mark 
do not provide the necessary foundation for sufficient funding 
commitments and realistic long-term planning. 

Constraining development cycles would make it easier to more accurately 
estimate costs, and as a result, predict the future funding needs and 
effectively allocate resources. We have consistently emphasized the 
need for DOD's weapon programs to establish shorter development cycles. 
DOD's conventional acquisition process often requires as many as 10 or 
15 years to get from program start to production. Such lengthy cycle 
times promote program funding instability--especially when considering 
DOD's tendency to change requirements and funding as well as frequent 
changes in leadership. Constraining cycle times to 5 or 6 years would 
force programs to conduct more detailed systems engineering analyses, 
lend itself to fully funding programs to completion, and thereby 
increase the likelihood that their requirements can be met within 
established time frames and available resources. An assessment of DOD's 
acquisition system commissioned by the Deputy Secretary of Defense in 
2006 similarly found that programs should be time-constrained to reduce 
pressure on investment accounts and increase funding stability for all 
programs. 

Accountability Suffers When Program Managers Lack the Authority to 
Shape Programs: 

When DOD consistently allows unsound, unexecutable programs to pass 
through the requirements, funding, and acquisition processes, 
accountability suffers. Program managers cannot be held accountable 
when the programs they are handed already have a low probability of 
success. In addition, program managers are not empowered to make go or 
no-go decisions, have little control over funding, cannot veto new 
requirements, and have little authority over staffing. At the same 
time, program managers frequently change during a program's 
development. Our analysis indicates that the average tenure for 
managers on 39 major acquisition programs started since March 2001 was 
about 17 months--less than half the length of the average system 
development cycle time of 37 months. Such frequent turnover makes it 
difficult to hold program managers accountable for the business cases 
that they are entrusted to manage and deliver. 

The government's control over and accountability for decisions is 
complicated by DOD's growing reliance on technical, business, and 
procurement expertise supplied by contractors. This reliance can reach 
a point where the foundation on which decisions are based may be 
largely crafted by individuals who are not employed by the government, 
who are not bound by the same rules governing their conduct, and who 
are not required to disclose whether they have financial or other 
personal interests that conflict with the responsibilities they have 
performing contract tasks for DOD. Further, in systems development, DOD 
typically uses cost-reimbursement contracts, in which DOD generally 
pays the allowable costs incurred for the contractor's best efforts, to 
the extent provided by the contract. This may contribute to an 
acquisition environment that is not conducive for incentivizing 
contractors to follow best practices and keep cost and schedule in 
check. 

Recent Congressional Initiatives and DOD Actions Aim to Promote a More 
Disciplined, Knowledge-Based Acquisition Approach: 

Recognizing the need for more discipline and accountability in the 
acquisition process, Congress recently enacted legislation that, if 
followed, could result in a better chance to spend resources wisely. 
Likewise, DOD has recently begun to develop several initiatives, based 
in part on congressional direction and GAO recommendations that, if 
implemented properly, could also provide a foundation for establishing 
a well balanced investment strategy and sound, knowledge-based business 
cases for individual acquisition programs. 

Legislation Could Have a Positive Impact on Acquisition Outcomes: 

Over the past 3 years, Congress has enacted legislation that requires 
DOD to take certain actions which, if followed, could instill more 
discipline into the front-end of the acquisition process when key 
knowledge is gained and ultimately improve acquisition outcomes. For 
example, 2006 and 2008 legislation require decision-makers to certify 
that specific levels of knowledge have been demonstrated at key 
decision points early in the acquisition process before programs can 
enter the technology development phase or the system development phase. 
The 2006 legislation also requires programs to use their original 
baseline estimates--and not only their most recent estimates--when 
reporting unit cost threshold breaches. It also requires an additional 
assessment of the program if certain thresholds are reached. Other key 
legislation requires DOD to report on the department's strategies for 
balancing the allocation of funds and other resources among major 
defense acquisition programs, and to identify strategies for enhancing 
the role of program managers in carrying out acquisition programs. (For 
more detailed description of recent legislation, see appendix I). 

Recent DOD Actions Provide Opportunities for Improvement: 

DOD has initiated actions aimed at improving investment decisions and 
weapon system acquisition outcomes, based in part on congressional 
direction and GAO recommendations. Each of the initiatives is designed 
to enable more informed decisions by key department leaders well ahead 
of a program's start, decisions that provide a closer match between 
each program's requirements and the department's resources. For 
example: 

* DOD is experimenting with a new concept decision review, different 
acquisition approaches according to expected fielding times, and panels 
to review weapon system configuration changes that could adversely 
affect program cost and schedule. 

* DOD is also testing portfolio management approaches in selected 
capability areas to facilitate more strategic choices about how to 
allocate resources across programs and also testing the use of capital 
budgeting as a potential means to stabilize program funding. 

* In September 2007, the Office of the Under Secretary of Defense for 
Acquisition, Technology and Logistics issued a policy memorandum to 
ensure weapons acquisition programs were able to demonstrate key 
knowledge elements that could inform future development and budget 
decisions. This policy directed pending and future programs to include 
acquisition strategies and funding that provide for contractors to 
develop technically mature prototypes prior to initiating system 
development, with the hope of reducing technical risk, validating 
designs and cost estimates, evaluating manufacturing processes, and 
refining requirements. 

* DOD also plans to implement new practices that reflect past GAO 
recommendations intended to provide program managers more incentives, 
support, and stability. The department acknowledges that any actions 
taken to improve accountability must be based on a foundation whereby 
program managers can launch and manage programs toward greater 
performance, rather than focusing on maintaining support and funding 
for individual programs. DOD acquisition leaders have told us that any 
improvements to program managers' performance hinge on the success of 
these departmental initiatives. 

* In addition, DOD has taken actions to strengthen the link between 
award and incentive fees with desired program outcomes, which has the 
potential to increase the accountability of DOD programs for fees paid 
and of contractors for results achieved. 

If adopted and implemented properly these actions could provide a 
foundation for establishing sound, knowledge-based business cases for 
individual acquisition programs, and the means for executing those 
programs within established cost, schedule, and performance goals. 

Concluding Observations on Achieving Successful and Lasting Reform: 

DOD understands what it needs to do at the strategic and at the program 
level to improve acquisition outcomes. The strategic vision of the 
current Under Secretary of Defense for Acquisition, Technology and 
Logistics acknowledges the need to create a high-performing, boundary- 
less organization--one that seeks out new ideas and new ways of doing 
business and is prepared to question requirements and traditional 
processes. Past efforts have had similar goals, yet we continue to find 
all too often that DOD's investment decisions are service-and program- 
centric and that the military services overpromise capabilities and 
underestimate costs to capture the funding needed to start and sustain 
development programs. This acquisition environment has been 
characterized in many different ways. For example, some have described 
it as a "conspiracy of hope," in which industry is encouraged to 
propose unrealistic cost estimates, optimistic performance, and 
understated technical risks during the proposal process and DOD is 
encouraged to accept these proposals as the foundation for new 
programs. Either way, it is clear that DOD's implied definition of 
success is to attract funds for new programs and to keep funds for 
ongoing programs, no matter what the impact. DOD and the military 
services cannot continue to view success through this prism. Adding 
pressure to this environment are changes that have occurred within the 
defense supplier base. In 2006, a DOD-commissioned study found that the 
number of fully competent prime contractors competing for programs had 
been reduced from more than 20 in 1985 to only 6. This limits DOD's 
ability to maximize competition to reduce costs and encourage 
innovation. 

More legislation can be enacted and policies can be written, but until 
DOD begins making better choices that reflect joint capability needs 
and matches requirements with resources, the acquisition environment 
will continue to produce poor outcomes. It should not be necessary to 
take extraordinary steps to ensure needed capabilities are delivered to 
the warfighter on time and within costs. Executable programs should be 
the natural outgrowth of a disciplined, knowledge-based process. While 
DOD's current policy supports a knowledge-based, evolutionary approach 
to acquiring new weapons, in practice decisions made on individual 
programs often sacrifice knowledge and realism in favor of 
revolutionary solutions. Meaningful and lasting reform will not be 
achieved until DOD changes the acquisition environment and the 
incentives that drive the behavior of DOD decision-makers, the military 
services, program managers, and the defense industry. Finally, no real 
reform can be achieved without a true partnership among all these 
players and the Congress. 

Mr. Chairman, this concludes my prepared statement. I would be happy to 
answer any questions you may have at this time. 

Contacts and Staff Acknowledgments: 

For further information about this statement, please contact Katherine 
V. Schinasi at (202) 512-4841 or [email protected]. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this testimony. Individuals who made key 
contributions to this statement include Michael J. Sullivan, Director; 
Ronald E. Schwenn, Assistant Director; Megan Hill; Travis J. Masters; 
Karen Sloan; and Alyssa B. Weir. 

[End of section] 

Appendix I: Recent Legislative Initiatives: 

Legislation: Section 801; National Defense Authorization Act for Fiscal 
Year 2006; Pub. L. No. 109-163; 
Major Components: 10 U.S.C. ï¿½ 2366a (as amended) - Milestone B 
Certification; Before a major defense program can receive approval to 
start system development, the Milestone Decision Authority (MDA) must 
certify that, for example: 
* the program is affordable when considering DOD's ability to 
accomplish the program's mission using alternative systems and the per 
unit and total acquisition costs in the context of the Future Year 
Defense Plan; 
* reasonable cost and schedule estimates have been developed for system 
development and production; 
* appropriate market research has been conducted prior to technology 
development to reduce duplication of existing technology and products; 
and; 
* the technology in the program has been demonstrated in a relevant 
environment. MDA may waive one or more requirements if the MDA 
determines that without a waiver, DOD would be unable to meet critical 
national security objectives. 

Legislation: Section 802; National Defense Authorization Act for Fiscal 
Year 2006; Pub. L. No. 109-163; 
Major Components: 10 U.S.C. ï¿½ 2433 (as amended) - Unit Cost Reports; 
Amended reporting and certification requirements for major defense 
programs that exceed baseline costs, by: 
* creating two types of growth thresholds--"significant cost growth" 
and "critical cost growth"; 
* basing new thresholds on the percentage increases in both the 
original and current baseline estimate for the program; 
* incorporating these thresholds into existing unit cost reporting 
requirements; and; 
* requiring that in the event of a breach of the critical cost growth 
threshold, the Secretary of Defense, in coordination with the Joint 
Requirements Oversight Council, to (1) assess the reasons for the cost 
growth, the projected cost to either complete the program with current 
or reasonably modified requirements, and the rough order of magnitude 
costs for a reasonable alternative system or capability and (2) certify 
that the program is essential to national security; no less costly, 
equally capable alternatives exist; new cost estimates are reasonable; 
and an adequate management structure is in place to control costs. 

Legislation: Section 853; John Warner National Defense Authorization 
Act for Fiscal Year 2007; Pub. L. No. 109-364; 
Major Components: Program Manager Empowerment and Accountability; 
Required the Secretary of Defense to develop a strategy for enhancing 
the role of DOD program managers in developing and carrying out defense 
acquisition programs that addressed matters such as: 
* enhanced training; 
* improved career paths and opportunities; 
* incentives for recruitment and retention of highly qualified 
individuals; 
* improved resources and support; 
* increased accountability; 
* enhanced monetary and non-monetary awards for successful 
accomplishment of program objectives; 
Required that DOD guidance for major defense programs be revised to 
address program manager qualifications, resources, responsibilities, 
tenure and accountability. Guidance for taking programs from 
development to production was to address matters such as: 
* the need for performance agreements between program managers and MDAs 
that set forth expected parameters for cost, schedule and performance 
and include commitments by both parties to ensure parameters are met 
and; 
* the extent to which a program manager should continue in the position 
without interruption until the delivery of the first production units. 

Legislation: Section 817; National Defense Authorization Act for Fiscal 
Year 2008; Pub. L. No. 110-181; 
Major Components: Investment Strategy for Major Defense Acquisition 
Programs; Required the Secretary of Defense to submit to the 
congressional defense committees a report on DOD's strategies for 
balancing the allocation of funds and other resources among major 
defense acquisition programs. The report was to address topics such as 
DOD's ability to: 
* establish priorities among needed capabilities and assess resources 
needed to achieve such capabilities and; 
* balance costs, schedule and requirements of major defense programs to 
ensure the most efficient use of resources. 
The report also was to address the role of a Tri-Chair Committee 
comprised of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics; the Vice Chairman of the Joint Chiefs of 
Staff; and the director of Program Analysis and Evaluation, among 
others; in the resource allocation process. 

Legislation: Section 943; National Defense Authorization Act for Fiscal 
Year 2008; Pub. L. No. 110-181; 
Major Components: 10 U.S.C. ï¿½ 2366b Milestone A Certification; Before a 
major defense program can receive approval to begin technology 
development, the MDA must, after consulting with the Joint Requirements 
Oversight Council (JROC) on matters related to program requirements and 
military needs, certify that, for example: 
* the system fulfills an approved initial capabilities document; 
* the system is necessary and appropriate if it duplicates a capability 
already provided by an existing system; and; 
* the cost estimate for the system has been submitted and the level of 
resources required to develop and procure the system is consistent with 
the priority level assigned by the JROC. 
If a milestone A certified major defense program exceeds the cost 
estimate for the system submitted at the time of certification by at 
least 25 percent prior to milestone B approval, the MDA and JROC shall 
determine whether the level of resources required to develop and 
procure the system remains consistent with the priority level assigned. 
The Secretary of Defense was also asked to review guidance and take 
steps to ensure that DOD does not initiate a technology development 
program for a major weapon system without milestone A approval. 

Source: GAO. 

[End of table] 

[End of section] 

Related GAO Products: 

Defense Acquisitions: Assessments of Selected Weapon Programs. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-467SP]. 
Washington, D.C.: March 31, 2008. 

Best Practices: Increased Focus on Requirements and Oversight Needed to 
Improve DOD's Acquisition Environment and Weapon System Quality. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-294]. Washington, 
D.C.: Feb. 1, 2008. 

Cost Assessment Guide: Best Practices for Estimating and Managing 
Program Costs. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-
1134SP], Washington, D.C.: July 2007. 

Defense Acquisitions: Assessments of Selected Weapon Programs. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-406SP]. 
Washington, D.C.: March 30, 2007. 

Best Practices: An Integrated Portfolio Management Approach to Weapon 
System Investments Could Improve DOD's Acquisition Outcomes. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-388], Washington, 
D.C.: March 30, 2007. 

Best Practices: Stronger Practices Needed to Improve DOD Technology 
Transition Processes. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-
06-883]. Washington, D.C.: September 14, 2006. 

Best Practices: Better Support of Weapon System Program Managers Needed 
to Improve Outcomes. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-
06-110]. Washington, D.C.: November 1, 2005. 

Defense Acquisitions: Major Weapon Systems Continue to Experience Cost 
and Schedule Problems under DOD's Revised Policy. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-06-368]. Washington, D.C.: April 
13, 2006. 

DOD Acquisition Outcomes: A Case for Change. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-06-257T]. Washington, D.C.: 
November 15, 2005. 

Defense Acquisitions: Stronger Management Practices Are Needed to 
Improve DOD's Software-Intensive Weapon Acquisitions. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-04-393]. Washington, D.C.: March 
1, 2004. 

Best Practices: Setting Requirements Differently Could Reduce Weapon 
Systems' Total Ownership Costs. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-03-57]. Washington, D.C.: February 11, 2003. 

Defense Acquisitions: Factors Affecting Outcomes of Advanced Concept 
Technology Demonstration. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-03-52]. Washington, D.C.: December 2, 2002. 

Best Practices: Capturing Design and Manufacturing Knowledge Early 
Improves Acquisition Outcomes. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-701]. Washington, D.C.: July 15, 2002. 

Defense Acquisitions: DOD Faces Challenges in Implementing Best 
Practices. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-469T]. 
Washington, D.C.: February 27, 2002. 

Best Practices: Better Matching of Needs and Resources Will Lead to 
Better Weapon System Outcomes. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-01-288]. Washington, D.C.: March 8, 2001. 

Best Practices: A More Constructive Test Approach Is Key to Better 
Weapon System Outcomes. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-00-199]. Washington, D.C.: July 31, 2000. 

Defense Acquisition: Employing Best Practices Can Shape Better Weapon 
System Decisions. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-
NSIAD-00-137]. Washington, D.C.: April 26, 2000. 

Best Practices: DOD Training Can Do More to Help Weapon System Programs 
Implement Best Practices. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-99-206]. Washington, D.C.: August 16, 1999. 

Best Practices: Better Management of Technology Development Can Improve 
Weapon System Outcomes. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-99-162]. Washington, D.C.: July 30, 1999. 

Defense Acquisitions: Best Commercial Practices Can Improve Program 
Outcomes. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-99-
116]. Washington, D.C.: March 17, 1999. 

Defense Acquisitions: Improved Program Outcomes Are Possible. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-98-123]. 
Washington, D.C.: March 17, 1998. 

Best Practices: Successful Application to Weapon Acquisition Requires 
Changes in DOD's Environment. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-98-56]. Washington, D.C.: February 24, 1998. 

Best Practices: Commercial Quality Assurance Practices Offer 
Improvements for DOD. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-96-162]. Washington, D.C.: August 26, 1996. 

[End of section] 

Footnotes: 

[1] Our analysis in this area reflects comparisons of performance for 
programs meeting DOD's criteria for being a major defense acquisition 
program in fiscal year 2007 and programs meeting the same criteria in 
fiscal years 2005 and 2000. The analysis does not include all the same 
systems in all 3 years. 

[2] GAO, Best Practices: Increased Focus on Requirements and Oversight 
Needed to Improve DOD's Acquisition Environment and Weapon System 
Quality, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-294] 
(Washington, D.C.: Feb. 1, 2008). 

[End of section] 

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