Weapons Acquisition: Better Use of Limited DOD Acquisition Funding Would
Reduce Costs (Letter Report, 02/13/97, GAO/NSIAD-97-23).

GAO reviewed the Department of Defense's (DOD) weapons acquisition
procedures, focusing on: (1) DOD's practice of reducing the annual
production of weapons below planned optimum rates during full-rate
production; (2) the reasons for this practice; and (3) the effect of
this practice on the costs and availability of weapons.

GAO found that: (1) DOD has inappropriately placed a high priority on
buying large numbers of untested weapons during low-rate initial
production to ensure commitment to new programs and thus has had to cut
by more than half its planned full production rates for many weapons
that have already been tested; (2) this practice is wasteful because DOD
must often modify, at high cost, the large numbers of untested weapons
it has bought before they are usable and must lower annual buys of
tested, proven weapons, stretching out full-rate production for years
due to a lack of funds; (3) GAO has repeatedly reported on DOD's
practice of procuring substantial inventories of unsatisfactory weapons
requiring costly modifications to achieve satisfactory performance and,
in some cases, deployment of substandard weapons to combat forces; (4)
GAO found the practice of reducing planned full production rates to be
widespread; (5) primarily because of funding limitations, DOD has
reduced the annual full-rate production for 17 of the 22 proven weapons
reviewed, stretching out the completion of the weapons' production an
average of 8 years longer than planned; (6) according to DOD's records,
if these weapons were produced at their originally planned rates and
respective cost estimates, the quantities produced as of the end of
fiscal year 1996 would have cost nearly $10 billion less; (7) at the
same time, DOD is funding increased annual quantities of weapons in
low-rate production that often are in excess of what is needed to
perform operational tests and establish the production base; (8) if DOD
bought untested weapons during low-rate initial production at minimum
rates, more funds would be available to buy other proven weapons in
full-rate production at more efficient rates and at lower costs; and (9)
this would reduce costly modifications to fix substandard weapons bought
in low-rate production and allow full-rate production of weapons with
demonstrated performance to be completed and deployed to combat forces
earlier.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-97-23
     TITLE:  Weapons Acquisition: Better Use of Limited DOD Acquisition 
             Funding Would Reduce Costs
      DATE:  02/13/97
   SUBJECT:  Defense procurement
             Advanced weapons systems
             Budget cuts
             Testing
             Federal procurement policies
             Defense budgets
             Defense cost control
             Defense capabilities
             Concurrency
             Irregular procurement practices
IDENTIFIER:  C-17 Aircraft
             T-45A Aircraft
             Army Family of Medium Tactical Vehicles
             HAWKEYE E-2C Aircraft
             Avenger Aircraft
             Blackhawk Helicopter
             Tomahawk Cruise Missile
             NAVSTAR Global Positioning System
             Kiowa Warrior Helicopter
             HELLFIRE Missile
             Standard Missile System
             F-22 Aircraft
             JSTARS Common Ground Station
             Multiple Launch Rocket System
             Rolling Airframe Missile
             F/A-18E/F Aircraft
             
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Cover
================================================================ COVER


Report to the Secretary of Defense

February 1997

WEAPONS ACQUISITION - BETTER USE
OF LIMITED DOD ACQUISITION FUNDING
WOULD REDUCE COSTS

GAO/NSIAD-97-23

Weapons Acquisition

(707126)


Abbreviations
=============================================================== ABBREV

  AGM - air-to-ground missile
  AMRAAM - advanced medium range air-to-air missile
  ATACMS - Army Tactical Missile System
  DOD - Department of Defense
  DOT&E - developmental operational test and evaluation
  FAAD - Forward Area Air Defense
  GBS - Ground Based Sensor
  GPS - Global Positioning System
  GMLS - Guided Missile Launch System
  LRIP - low-rate initial production
  MLRS - Multiple Launch Rocket System
  OT&E - operational test and evaluation
  RAM - rolling airframe missile

Letter
=============================================================== LETTER


B-272633

February 13, 1997

The Honorable William S.  Cohen
The Secretary of Defense

Dear Mr.  Secretary: 

In response to congressional concerns about the way that the
Department of Defense (DOD) buys weapons, we reviewed (1) DOD's
practice of reducing the annual production of weapons below planned
optimum rates during full-rate production, (2) the reasons for this
practice, and (3) the effect of this practice on the costs and
availability of weapons.  In addition, we looked into the benefits of
changing DOD's current practice. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The fiscal year 1997 DOD procurement appropriation is $43.8 billion,
a reduction of over 67 percent from the $134.3 billion (in constant
fiscal year 1997 dollars) appropriated in 1985.  Many weapon
acquisitions have been affected by this decline in the procurement
budget.  DOD's primary response to the reduced budget has been to
reduce annual procurement quantities of weapons in full-rate
production and extend their production schedules. 

DOD buys new weapons in two phases:  low-rate initial production
(LRIP) and full-rate production.  When in LRIP, according to 10
U.S.C.  2400, DOD is to buy minimum quantities of a new weapon.  This
legislation resulted from concern in the Congress about the large
quantities of weapons units bought before adequate testing.  The
purpose of LRIP is to (1) provide weapons for operational test and
evaluation, (2) establish an initial production base for the weapon,
and (3) permit an orderly increase in production before full-rate
production begins.  Operational test and evaluation is key to
ensuring that a weapon's capabilities operate as designed before
full-rate production begins.  At this time, field tests are done to
demonstrate the weapon's effectiveness and suitability for military
use.  After the weapon's design has stabilized and the weapon's
capabilities are proven, the services enter full-rate production to
begin buying proven weapons in economic quantities.  In practice, DOD
views low-rate production as any production prior to completion of
initial operational tests and full-rate production as the production
that follows these tests, with the terms low rate and full rate
having little or no relevance to the annual quantity bought. 

We reviewed 6 weapons in LRIP and 22 weapons in full-rate production. 
(See app.  I for a list of the weapons.) The 22 weapons in full-rate
production represent those that in fiscal year 1996 had substantial
ongoing production lines.  The six low-rate production weapons were
ones in production in fiscal year 1996 with substantial planned
follow-on full-rate production quantities.  For the six weapons in
low-rate production, we looked for increases in production rates
before operational tests were completed and decreases in the planned
future full production rates.  For the 22 weapons in full-rate
production, we compared DOD's planned optimal production rates,
costs, and schedules to that of actual full-rate production through
fiscal year 1996 (see app.  II). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

DOD has inappropriately placed a high priority on buying large
numbers of untested weapons during LRIP to ensure commitment to new
programs and thus has had to cut by more than half its planned full
production rates for many weapons that have already been tested. 
This practice is wasteful because DOD must often modify, at high
cost, the large numbers of untested weapons it has bought before they
are usable and must lower annual buys of tested, proven weapons;
stretching out full-rate production for years due to a lack of funds. 
We have repeatedly reported on DOD's practice of procuring
substantial inventories of unsatisfactory weapons requiring costly
modifications to achieve satisfactory performance and, in some cases,
deployment of substandard weapons to combat forces.  As examples, the
Air Force's C-17 airlift aircraft, the Navy's T45A trainer aircraft,
and the Army's Family of Medium Tactical Vehicles encountered
problems during test and evaluation that required major changes after
significant quantities were bought during low-rate production. 

We found the practice of reducing planned full production rates to be
widespread.  Primarily because of funding limitations, DOD has
reduced the annual full-rate production for 17 of the 22 proven
weapons reviewed, stretching out the completion of the weapons'
production an average of
8 years longer than planned.  According to DOD's records, if these
weapons were produced at their originally planned rates and
respective cost estimates, the quantities produced as of the end of
fiscal year 1996 would have cost nearly $10 billion less.  At the
same time, DOD is funding increased annual quantities of weapons in
low-rate production that often are in excess of what is needed to
perform operational tests and establish the production base. 

If DOD bought untested weapons during LRIP at minimum rates, more
funds would be available to buy other proven weapons in full-rate
production at more efficient rates and at lower costs.  Also, this
would reduce costly modifications to fix substandard weapons bought
in low-rate production and allow full-rate production of weapons with
demonstrated performance to be completed and deployed to combat
forces earlier. 


   DOD OFTEN DECREASES PRODUCTION
   RATES OF PROVEN WEAPONS
------------------------------------------------------------ Letter :3

It is not uncommon for DOD to reduce the annual production quantities
of proven weapons, stretching out full-rate production schedules for
years.  For 17 of the 22 proven weapons we reviewed, the actual
production rates were 57 percent lower than originally planned. 
Decreased rates vary from 10 percent for the E-2C Hawkeye to 88
percent for the Standard missile system.  For 12 of these weapons
with reduced rates during full-rate production, program officials
cited insufficient funding as a contributing reason for lower rates,
and therefore stretching out production.  As a result of reduced
rates, production of the 17 weapons will take an average of over 8
years, or 170 percent, longer to complete than originally planned. 
The number of years the 17 weapons' production schedules have been
stretched out ranges from 1 year for the Avenger to 43 years for the
Black Hawk helicopter based on current production rates.  (See app. 
III for the reduced production rates on each of these weapons.)
Examples of proven weapons with reduced annual production rates
follow: 

  -- At the extreme for slowed production is the Army's Black Hawk
     helicopter.  If the Army continues to buy the Black Hawk at the
     current rate, full-rate production will take almost 54 years to
     complete, about
     43 years longer than originally planned. 

  -- The Navy's production of the Tomahawk missile was to be
     completed in
     9 years or by 1992, but instead it will take 15 years or until
     1998, a 67-percent schedule increase.  Originally, the Navy's
     planned procurement rate was 600 Tomahawks annually; instead, it
     has averaged 276 missiles a year, a decrease of over 50 percent
     from the planned production rate. 


   EXTENDED SCHEDULES RESULT IN
   HIGHER ACQUISITION COSTS
------------------------------------------------------------ Letter :4

Because of their reduced annual production rates and stretched out
schedules, the acquisition of the 17 weapons we reviewed in full-rate
production has cost nearly $10 billion more, through fiscal year
1996, than the program offices estimated based on their original
planned production rates.  Since 14 of the 17 weapons will still be
in production beyond fiscal year 1996, the total increased cost at
completion of these weapons could be significantly more than $10
billion.  When the annual production quantity of a weapon is reduced,
its unit cost generally increases because fixed costs are spread over
a smaller quantity.  This was the case for 14 of the 17 weapons we
reviewed that had reduced production rates (see
app.  II).\1 For example, the Navy planned to produce 48 T45 training
aircraft annually at a unit cost of $8.7 million.  Instead, an
average of 12 T45s has been produced annually since full-rate
production began in 1994, at a unit cost of $18.2 million.  For the
quantity produced in full-rate production through fiscal year 1996,
T45 costs have increased from the original estimate by $345 million. 

When weapon systems are funded at their planned full production rates
or higher, the unit cost of the weapon generally decreases, as
illustrated in the following examples: 

  -- The Army's program office increased the quantities of its Global
     Positioning System (with an original planned annual rate of
     14,000) from 11,000 to 18,500 during 4 years of full-rate
     production.  As a result, the unit cost of the system decreased
     from $1,400 to $1,076. 

  -- If annual production were increased, the Army could save up to
     an estimated $491 million on the remaining 109 Kiowa Warrior
     helicopters it needs to finish full-rate production.  For each
     of the last 3 years, the program office has procured an average
     of 16 units a year at a unit cost of $10.22 million.\2

According to Kiowa program officials, the most efficient annual
production rate of 72 helicopters would reduce unit cost to $5.72
million. 


--------------------
\1 The three remaining weapons had lower unit costs for reasons not
tied directly to the production rate.  If these weapons were procured
at their planned rates, additional acquisition cost savings could be
realized. 

\2 This is the unit cost for fiscal year 1995, the last year actual
cost data were available on the helicopter.  This figure applies only
to remanufactured vehicles. 


   MAKING LARGE INVESTMENTS IN
   UNTESTED WEAPONS INCREASES COST
   AND PERFORMANCE RISKS
------------------------------------------------------------ Letter :5

The practice of allocating funds during low-rate production to
increase annual production quantities before successful completion of
initial operational test and evaluation has frequently been wasteful. 
As we reported in November 1994, the consequences of buying large
quantities of untested weapons are increased acquisition costs, the
accumulation of unsatisfactory weapons that require costly
modifications to meet performance requirements and, in some cases,
the deployment of substandard weapons to combat forces.\3 That report
contained
12 illustrative examples describing the problems experienced when the
weapons were tested, the major fixes required after significant
quantities were bought and, in many cases, the deployment of
substandard weapons to combat forces.  (Those 12 examples are
included in appendix IV of this report.) In one case, before the Army
did any operational test and evaluation, a multiyear production
contract was awarded for up to 10,843 trucks.  Operational testing
was suspended 2 months after it began because the trucks were found
to be unreliable and therefore not operationally effective. 
Production continued while the contractor modified the truck design
to correct deficiencies.  By the time the trucks passed operational
testing, over 2,000 trucks were produced, the majority of which
required extensive remanufacturing to correct the deficiencies. 

Most program offices developed an acquisition strategy for both
low-rate and full-rate production based on optimistic projections of
available funding.  As a result, the offices tended to over program
the number of weapons that can be bought with the dollars available
in DOD's spending plan.  As we have previously reported, the use of
optimistic planning assumptions has led to program instability,
costly program stretch-outs, and program terminations.\4 Current DOD
acquisition guidelines permit increasingly higher quantities of
weapons in low-rate production to provide for the orderly transition
to full-rate production.  In addition, DOD's acquisition culture
encourages this practice to solidify organizational commitment to
keep weapon acquisition programs moving and to protect them from
interruption.\5 In this regard, within DOD's acquisition culture, a
weapon's acquisition manager's success depends on getting results,
and in acquisitions, results mean getting the weapon into production
and into the field. 

The trend to reduce the full production rates from the original plans
because of limited funds and to produce more quantities than are
needed for testing during low-rate production increases procurement
costs.  For example, DOD increased the annual low-rate production of
the Army's untested Longbow Hellfire Missile in fiscal years 1995,
1996, and 1997 from 0 to 352, and 1,040, respectively; while the Navy
reduced full-rate production of the Standard missile system for those
fiscal years from 202, to 64, and 127, respectively.  Between fiscal
years 1995 and 1997, low-rate production funding for the Longbow was
increased from $41.2 million to $249.5 million while the full-rate
funding for the Standard missile was reduced from $240.4 million to
$197.5 million.  The Navy originally planned to produce 2,160
Standard missiles a year during full-rate production over a period of
4 years.  Instead, the Navy has averaged only 266 missiles a year and
at that rate it will take 21 years to complete production, 17 years
longer than planned, and at a cost of $286 million more than
estimated at the originally planned rate. 

Many times, the services steadily increased the annual LRIP
quantities, exceeding the number ultimately needed to complete
operational tests and prove out the production line.  The increase in
annual quantities of weapons produced during low-rate production
resulted in a substantial reduction of funds available for the
production of proven weapons at planned rates.  By minimizing the
quantities of weapons procured during LRIP, DOD can reduce the risk
associated with producing untested weapons and increase the funding
available to produce other proven systems in full-rate production at
planned rates, lowering their unit cost. 

For eight of the weapons we reviewed, the services' procurement rates
during LRIP were equal to or more than they were during full-rate
production.  For example, the program office for the advanced medium
range air-to-air missile increased the quantities produced during
low-rate production to 900 units annually.  However, since 1992, when
it completed operational tests and entered full-rate production, the
missile has been produced at an annual rate of 900 or more only
twice.  In fact, from fiscal years 1997 to 2007, the program office
plans to procure an average of only 338 units a year.  Table 1 shows
the remaining seven weapons with low-rate production quantities equal
to or higher than full-rate quantities. 



                                Table 1
                
                 Systems With Low-Rate Production Equal
                 to or Higher Than Full-Rate Quantities

                                                               Full-
                                                                rate
                                                              producti
                                                                 on
                                                              quantity
                               Quantity in     Quantity in       in
                                   last           first        fiscal
                                2 low-rate     2 full-rate      year
                                  years           years         1996
                              --------------  --------------  --------
System
----------------------------  ------  ------  ------  ------  --------
Black Hawk                        92      94      80      96        60
Commander's tactical              33      58      51      51       0\a
 terminal
Improved recovery vehicle         15      24      12      12       0\a
JSTARS ground station             16      20      20      19       0\a
Multiple launch rocket            68      72      76      44       0\b
 system launcher
Rolling airframe missile         250     250     180     240       200
T45 trainer aircraft              12      12      12      12        12
----------------------------------------------------------------------
\a System is still currently in low-rate production.  Full-rate
quantities shown are current planned rates occurring beyond fiscal
year 1996. 

\b Fiscal year 1995 was the last year with production quantities for
this system. 

DOD continues to generate optimistic full-rate production plans that
are rarely achieved.  One example where this situation could occur
and where planned increases in low-rate production quantities may be
unnecessary is the Navy's F/A-18E/F system.  The Navy plans to
procure 72 F/A-18E/F aircraft over 3 years during LRIP--12 in 1997,
24 in 1998, and 36 in 1999 and then procure 72 each year during peak
full-rate production years.  However, the Congress has questioned the
affordability of this full production rate and has directed DOD to
calculate costs based on estimates of 18, 24, and 36 aircraft a
year.\6 In addition, the conferees on the Omnibus Consolidated
Appropriations Act for Fiscal Year 1997 asked for calculations based
on 48 aircraft a year.\7 The increased quantities procured during
low-rate production are not necessary to transition to full-rate
production, especially if the number of aircraft procured during
full-rate production drops significantly.  Even if the Navy buys the
aircraft at the rate originally planned, production rate increases to
reach peak full rates could occur after the system has been
operationally tested, rather than before.  The same optimistic
planning is reflected in the Air Force's F-22 program.  The Air Force
plans to contract for F-22 aircraft under four low-rate buys of 4,
12, 24, and 36 aircraft for a total of 76 aircraft at an estimated
cost of nearly $11 billion prior to completing initial operational
test and evaluation and entering full-rate production at 48 aircraft
a year. 


--------------------
\3 Weapons Acquisition:  Low-Rate Initial Production Used to Buy
Weapon Systems Prematurely (GAO/NSIAD-95-18, Nov.  21, 1994). 

\4 Future Years Defense Program:  Optimistic Estimates Lead to
Billions in Overprogramming (GAO/NSIAD-94-210, July 29, 1994). 

\5 Weapons Acquisition:  A Rare Opportunity for Lasting Change
(GAO/NSIAD-93-15, Dec.  1992). 

\6 National Defense Authorization Act for Fiscal Year 1997, Public
Law 104-201, Section 219. 

\7 H.R.  Report (Conference) No.  104-863, 104th Congress, 2nd
Session (1996) at 897, on Making Omnibus Consolidated Appropriations
for Fiscal Year 1997. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

During LRIP, DOD is supposed to restrict the number of weapons
produced to the minimum quantity necessary to conduct operational
testing, establish the initial production base, and allow for an
orderly increase into full-rate production.  However, because DOD
often budgets available funding for unnecessary increases in low-rate
production quantities of unproven weapons, it rarely is able to buy
proven weapons at originally planned full-rates.  When funding is
insufficient to produce proven weapons in full-rate production at
optimum levels and therefore to complete programs in a timely manner,
it is not cost-effective to use limited funds to unnecessarily
increase production of untested weapons whose designs are not yet
stabilized.  This wasteful practice could be minimized by shifting
increases in annual production rates from the low-rate production
phase to the beginning of full-rate production. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

We recommend that the Secretary of Defense revise DOD's weapon
acquisition policies to require that (1) annual quantities of weapons
bought during LRIP be limited to the minimum necessary to complete
initial operational test and evaluation and prove the production line
and (2) rates and quantities not be increased during low-rate
production to ease the transition into full-rate production unless
DOD clearly establishes that the increase is critical to achieving
efficient, realistic, and affordable full production rates and can be
accomplished without affecting the efficient production of proven
systems. 

We also recommend that the Secretary of Defense direct the Under
Secretary of Defense for Acquisition and Technology and the Under
Secretary of Defense (Comptroller and Chief Financial Officer) to
submit future budgets that place priority on funding the efficient
production of weapons in full-rate production. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

In commenting on a draft of this report, DOD agreed with the
principle that premature commitment to LRIP is unwise and that LRIP
should not be used to buy equipment that is known not to work.  DOD
believes the existing policy as set forth in the requirements of 10
U.S.C.  2400 (enacted in 1995) and DOD Directive 5000.2-R (issued in
1996) adequately provides an acquisition structure that allows DOD to
focus on minimizing LRIP quantities, while providing the flexibility
to maintain an adequate industrial base capability (e.g.  ramp-up) to
meet the interest of national security.  DOD also stated that it
makes every effort to fund full-rate production programs to the
maximum extent possible within funding availability, changing
priorities, and program realities. 

Concerning our recommendations, DOD commented that (1) its current
acquisition policies fully comply with the intent of the policy
proposal to minimize the quantities produced under LRIP, (2)
increasing production rates (ramping-up) during LRIP allows the
contractor to hire and train his production team and maintain a
production workforce while operational testing is being conducted,
and (3) it makes every effort to fund full-rate production programs
but fiscal realities driven by a fluid environment is a serious
challenge that will continue to impact the stability of major defense
acquisition program production rates and quantities. 

Although efforts have been made in the last year to reduce the
quantities bought under LRIP, our review indicates that DOD is still
buying more than the minimum quantities needed.  By allowing the
ramp-up of quantities under LRIP to hire, train, and maintain a
workforce to produce a still unproven product, funding is diverted
from contractors producing proven products and their workforce by
reducing their production rates and quantities. 

DOD's comments have not addressed (1) the negative effect of the
current approach on the industrial base, (2) the cost implications,
and (3) the delayed deployment of proven weapons.  Cost implications
include the added funding that will be needed to correct the problems
in products produced before operational testing is completed and the
increased costs from stretching out the production run of proven
products.  Stretched production schedules can also undermine national
security interests by delaying deployment of needed proven systems to
field units. 

If the LRIP rate "ramp-up" was delayed until after the completion of
operational test, initial quantities of unproven systems would be
reduced and additional funding would become available to buy the
proven systems at more efficient rates.  Although there are many
reasons why weapon quantities and funding for full-rate production
should be changed (such as changes in threats and technology), as
long as the existing requirement remains valid, we believe priority
should be given to funding the already tested, less risky full-rate
systems at the most efficient rate possible. 

DOD's comments are presented in their entirety in appendix V. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

To quantify the number of weapons being bought below their planned
full production rates, we screened the line items contained in the
February 1995 Procurement Programs document.  We determined that 88
percent of the budget for fiscal year 1996 was concentrated into 300
line items.  We then reviewed the 300 line items, primarily using
budget back-up books' documentation, to determine which of those
items were being bought on an annual repetitive production basis,
which is more conducive to increased rate production.  We narrowed
our universe to 83 line items, or 80 weapons, by excluding line items
that were multiple procurement items such as spares, modification
programs if the work was being done at a depot, advance procurements,
commercial products, and items that did not have a repetitive annual
production profile, such as a single one-time procurement. 

As we obtained additional program-specific data on the 80 weapons, we
determined that an additional 52 weapons should be excluded based on
the original criteria.  Thus, our final universe was 22 weapons in
full-rate production and 6 weapons in LRIP with a total cost of about
$6.5 billion in fiscal year 1996 procurement funds.  We collected
cost and schedule data for all 28 weapons through interviews and
documents from program officials for each weapon, service- and
DOD-level acquisition officials, a DOD Comptroller office official,
and a defense contractor.  We did our review primarily at the
individual program offices responsible for procuring the weapons. 

We performed our review from August 1995 through November 1996 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :9.1

This report contains recommendations to you.  The head of a federal
agency is required under 31 U.S.C.  720 to submit a written statement
on actions taken on our recommendations to the Senate Committee on
Governmental Affairs and the House Committee on Government Reform and
Oversight no later than 60 days after the date of the report.  A
written statement must also be submitted to the Senate and House
Committees on Appropriations with an agency's first request for
appropriations made more than 60 days after the date of the report. 

We are sending copies of this report to appropriate congressional
committees and the Secretaries of the Army, the Navy, and the Air
Force.  We will also make copies available to others on request. 

Please contact me at (202) 512-4841 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix VI. 

Sincerely yours,

Louis J.  Rodrigues
Director, Defense Acquisitions Issues


WEAPON SYSTEMS REVIEWED BY
LOCATION
=========================================================== Appendix I


      AVIATION AND TROOP COMMAND,
      MO. 
------------------------------------------------------- Appendix I:0.1

Black Hawk
Kiowa Warrior
Apache Longbow


      FORT MONMOUTH, N.J. 
------------------------------------------------------- Appendix I:0.2

JSTARS ground station\a
Commander's Tactical Terminal\a
Global Positioning System (GPS) user equipment
Single Channel Ground and Airborne Radio System
Frequency hopping multiplexor


      REDSTONE ARSENAL, ALA. 
------------------------------------------------------- Appendix I:0.3

Avenger
Multiple Launch Rocket System (MLRS) launcher
Army Tactical Missile System (ATACMS)
Stinger modification program
Forward Area Air Defense (FAAD)/Ground Based Sensor (GBS)
Longbow Hellfire missile\a


      EGLIN AIR FORCE BASE, FLA. 
------------------------------------------------------- Appendix I:0.4

Advanced medium range air-to-air missile (AMRAAM)
Air-to-ground missile (AGM)-130\a
Sensor fuzed weapon


      WARNER ROBINS AIR FORCE
      BASE, GA. 
------------------------------------------------------- Appendix I:0.5

R-11 fuel truck


      TANK AND AUTOMOTIVE COMMAND,
      MICH. 
------------------------------------------------------- Appendix I:0.6

Improved Recovery Vehicle\a


      WRIGHT-PATTERSON AIR FORCE
      BASE, OHIO
------------------------------------------------------- Appendix I:0.7

C-17\a


      NAVAL SEA SYSTEMS COMMAND,
      VA. 
------------------------------------------------------- Appendix I:0.8

Standard missile
Rolling airframe missile (RAM)
RAM Guided Missile Launch System (GMLS)


      NAVAL AIR SYSTEMS COMMAND,
      VA. 
------------------------------------------------------- Appendix I:0.9

F/A-18C/D
E-2C Hawkeye
T45 training system
Tomahawk


      STRATEGIC SYSTEMS PROGRAMS,
      VA. 
------------------------------------------------------ Appendix I:0.10

Trident II missile

\a Denotes system in low-rate initial production (LRIP).  All others
are in full-rate production (FRP). 


FULL-RATE PRODUCTION SYSTEMS
PROCURED BELOW ORIGINAL PLANNED
PRODUCTION RATES
========================================================== Appendix II

                              (Dollars in millions)

           Annual full production rate             Unit flyaway cost\a
           ----------------------------  ---------------------------------------
                                                                       Increased
                      Current   Percent             Average  Units to    cost to
Army        Planned   average     below   Planned   to date    date\b     date\c
---------  --------  --------  --------  --------  --------  --------  ---------
ATACMS        470.0     190.0      55.2    $0.465    $0.642    1477.0     $261.4
 Block 1
Avenger       144.0     105.2      26.9     0.674     1.140     721.0      336.0
Black         165.0      60.0      63.6     3.685     6.022    1193.0    2,788.0
 Hawk
FAAD GBS       31.0      17.5      43.5     2.634     2.300      24.0          0
Kiowa         120.0      36.0      70.0     3.106     5.235     366.0      779.2
 Warrior
MLRS           76.0      47.5      37.5     7.787     8.143     570.0      202.9
 launcher
Stinger      2593.0     650.0      74.9     0.006     0.013    1850.0       13.0
 modifica
 tions
================================================================================
Total                                                                   $4,380.5

Air Force
--------------------------------------------------------------------------------
AMRAAM       3000.0     484.4      83.9    $0.360    $0.596    4038.0     $953.0
Sensor       2150.0     500.0      76.7     0.152     0.310     500.0       79.0
 fuzed
 weapon
================================================================================
Total                                                                   $1,032.0

Navy
--------------------------------------------------------------------------------
E-2C            4.0       3.6      10.0   $64.318   $65.229       7.0       $6.4
F/A-18C/       74.8      55.6      25.7    18.841    24.859     612.0    3,683.0
 D
RAM           900.0     240.0      73.3     0.137     0.285     620.0       91.8
RAM GMLS       12.0       8.0      33.3     4.900     6.021      29.0       32.5
Standard     2160.0     266.0      87.7     0.486     0.556    4087.0      286.1
 missile
T45TS          48.0      12.0      75.0     8.652    18.233      36.0      344.9
Tomahawk      600.0     275.5      54.1     1.808     1.624    3913.0          0
Trident        72.0      22.8      68.3    32.426    16.283     343.0          0
 II
 missile
================================================================================
Total                                                                   $4,444.7
Average                            56.7
================================================================================
Total                                                                   $9,857.2
 cost
--------------------------------------------------------------------------------
\a In constant fiscal year 1996 dollars. 

\b Does not include foreign military sales. 

\c Despite being procured at rates lower than planned, unit costs for
the FAAD GBS and Tomahawk systems decreased as a result of
cost-reduction initiatives, which reduced the production cost. 
Likewise, the Trident II missile reduced its procurement rate for
industrial base preservation and affordability reasons, yet it still
had lower production costs.  If these systems could be produced at
their planned rates, unit costs could be even lower. 


FULL-RATE PRODUCTION SYSTEMS
PROCURED SLOWER THAN ORIGINALLY
PLANNED
========================================================= Appendix III

                                Years to  Years to     Years
                                complete  complete      over
                                 planned   current   planned   Percent
Army                            schedule  schedule  schedule    longer
------------------------------  --------  --------  --------  --------
ATACMS Block 1                       4.0       6.0       2.0      50.0
Avenger                              7.0       8.0       1.0      14.3
Black Hawk                          11.0      53.6      42.6     387.3
FAAD GBS                             4.0       6.0       2.0      50.0
Kiowa Warrior                        6.0      15.0       9.0     150.0
MLRS launcher                        7.5      12.0       4.5      60.0
Stinger modifications                5.0      11.0       6.0     120.0

Air Force
----------------------------------------------------------------------
AMRAAM                               3.0      16.0      13.0     433.3
Sensor fuzed weapon                  3.0      10.0       7.0     233.3

Navy
----------------------------------------------------------------------
E-2C                                 9.0      10.0       1.0      11.1
F/A-18C/D                            8.0      11.0       3.0      37.5
RAM                                  1.0       4.0       3.0     300.0
RAM GMLS                             5.1       8.0       2.9      56.9
Standard missile                     4.0      21.0      17.0     425.0
T45TS                                2.4      10.0       7.6     316.7
Tomahawk                             9.0      15.0       6.0      66.7
Trident II missile                   7.0      19.0      12.0     171.4
======================================================================
Average                                                  8.2     169.6
----------------------------------------------------------------------

EXCERPT FROM PRIOR GAO REPORT
========================================================== Appendix IV

                            Inadequa
                            te
                            system     Percent
                            deployed
                  Program   to        procured
System            category  field      in LRIP      Comments
------------  --  --------  --------  --------  --  ----------------------------
Air Force C-      Major     To be           33      The C-17's reliability is
17 Aircraft                 determin                significantly less than
                            ed                      expected, and the system
                                                    cannot meet current payload/
                                                    range specifications. Also,
                                                    while known problems with
                                                    the wings, flaps, and slats
                                                    are being fixed, other
                                                    problems continue to emerge.
                                                    (GAO/T-NSIAD-94-166, Apr.
                                                    19, 1994).

Air Force         Nonmajor  Yes            8\a      Despite the poor
AN/ALR-56C                                          operational, test, and
Radar                                               evaluation (OT&E) results,
Warning                                             the Air Force continued
Receiver                                            full-rate production and had
                                                    acquired about 750 systems
                                                    at a cost of over $570
                                                    million, as discussed in a
                                                    classified GAO report.

Air Force         Nonmajor  Yes            100      All 65 systems were produced
AN/ALQ-135                                          under LRIP at a cost of $256
Quick                                               million, before any OT&E was
Reaction                                            conducted. Because of
Capability                                          performance problems, most
Jammer                                              of the jammers were placed
                                                    in storage and only 24 were
                                                    installed on aircraft. One
                                                    year later, the 24 jammers
                                                    were deactivated because of
                                                    poor performance. (GAO/
                                                    NSIAD-90-168, July 11,
                                                    1990).

Air Force         Nonmajor  Yes           64\b      Through 1993, 331 of the 514
AN/ALQ-135                                          planned units were acquired
Improved                                            under LRIP. However, the
Jammer                                              system has encountered
                                                    significant software
                                                    problems, which have delayed
                                                    completion of development
                                                    testing by about 2 years.
                                                    OT&E has not yet started.

Air Force         Nonmajor  Yes            100      After the Air Force bought
AN/ALQ-131                                          most of the total quantity
Block II                                            of units under LRIP, tests
Jammer                                              found serious performance
                                                    problems. As a result, the
                                                    system was deployed with the
                                                    receiver/processor
                                                    inoperative due to a lack of
                                                    software. Other deficiencies
                                                    were also present. (GAO/
                                                    NSIAD-90-168, July 11,
                                                    1990).

Air Force         Nonmajor  Yes            100      Before the Air Force
AN/USM-464                                          conducted OT&E, 72 test sets
Electronic                                          were procured under LRIP at
Warfare Test                                        a cost of $272 million.
Set                                                 Later testing showed that
                                                    the equipment would not meet
                                                    requirements, and the units
                                                    were put in storage.

Air Force         Nonmajor  Yes            8\c      Developmental, operational,
AN/ALQ-184                                          test, and evaluation (DOT&E)
Jammer                                              recommended that jammers
                                                    production be stopped
                                                    because of poor OT&E
                                                    results. However, the system
                                                    had already entered and
                                                    continued full-rate
                                                    production anyway. We later
                                                    found that most of the 24
                                                    jammers deployed to a
                                                    tactical fighter wing had
                                                    been placed in storage.
                                                    (GAO/NSIAD-90-168, July 11,
                                                    1990).

Navy F-14D        Major     Yes            100      OT&E showed that the F-14D
Aircraft                                            was not sufficiently
                                                    developed and lacked
                                                    critical hardware and
                                                    software capabilities. The
                                                    program was terminated after
                                                    55 units were produced.
                                                    (GAO/IMTEC-92-21, Apr. 2,
                                                    1992).

Navy T-45A        Major     Yes             33      One year into LRIP, OT&E
Aircraft                                            found that the T-45A was not
                                                    effective in a carrier
                                                    environment and was not
                                                    operationally suitable
                                                    because of safety
                                                    deficiencies. Subsequent
                                                    major design changes have
                                                    included a new engine, new
                                                    wings, and a modified
                                                    rudder. (GAO/NSIAD-91-46,
                                                    Dec. 14, 1990).

Navy Pioneer      Nonmajor  Yes            Not      The Navy procured and
Unmanned                              applicab      deployed Pioneer as a
Aerial                                   le \d      nondevelopmental item and
Vehicle                                             without testing it. Numerous
                                                    problems ensued, including
                                                    engine failures, landing
                                                    difficulties, and a
                                                    cumbersome recovery system.
                                                    Many modifications were
                                                    required to bring Pioneer up
                                                    to a minimum essential level
                                                    of performance.

Army Family       Major     To be          4\e      Before the Army did any
of Medium                   determin                OT&E, a multiyear production
Tactical                    ed                      contract was awarded for up
Vehicles                                            to 10,843 trucks. Subsequent
                                                    OT&E was suspended because
                                                    the vehicles were found to
                                                    be unreliable and not
                                                    operationally effective.
                                                    However, production
                                                    continues. (GAO/NSIAD-93-
                                                    232, Aug. 5, 1993).

Army              Major     Yes             29      OT&E showed the system to be
Palletized                                          not operationally suitable.
Load System/                                        Despite the need for design
Family of                                           modifications to correct
Heavy                                               reliability and
Tactical                                            maintainability problems,
Vehicles                                            full-rate production was
                                                    approved.
--------------------------------------------------------------------------------
Source:  Weapons Acquisition:  Low-Rate Initial Production Used to
Buy Weapon Systems Prematurely (GAO/NSIAD-95-18, Nov.  21, 1994). 

\a Proceeded beyond LRIP before OT&E was conducted. 

\b Because of the quantity already procured in LRIP and the lack of
OT&E to date, additional units are likely to be procured in LRIP. 

\c Proceeded beyond LRIP beyond OT&E was conducted. 

\d Production was not separated into LRIP and full-rate production
phases. 

\e At least 3,800 trucks are expected to be produced in LRIP, or
about 4 percent of the more than 87,000 units planned to be procured. 




(See figure in printed edition.)Appendix V
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================== Appendix IV

See comment 1. 



(See figure in printed edition.)



(See figure in printed edition.)

See p.  8. 



(See figure in printed edition.)

Now on p.  8. 



(See figure in printed edition.)


The following is GAO's comment on the Department of Defense's letter
dated December 26, 1996. 

GAO COMMENT

1.  Appendix IV provides examples that illustrate how buying large
quantities of unproven systems during LRIP has been costly.  All
costs are reported in fiscal year 1996 constant dollars unless
otherwise indicated.  We have modified the report to recognize the
fact that there may be a number of valid reasons for changing the
quantities and funding for full-rate production, but if the existing
requirement is still valid and everything else is equal, we believe
priority should be given to buying the proven systems over the
unproven. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Laura Durland
Brenton Kidd
Howard Manning
Brian Mullins
Nancy Ragsdale

ATLANTA FIELD OFFICE

Tana Davis
John Warren

CHICAGO FIELD OFFICE

Arthur Cobb
Daniel Hauser

*** End of document. ***