GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on Readiness and Management Support, 

Committee on Armed Services

U.S. Senate

September 2000 DEFENSE 

ACQUISITIONS

Higher Priority 

Needed for Army 

Operating and Support 

Cost Reduction 

Efforts

GAO/NSIAD-00-197

Page 1 GAO/NSIAD-00-197 Defense Acquisitions

Contents

Letter 3

Appendixes Appendix I: Details of Operating and Support Cost Reduction

Initiatives for Fielded System Pilot Programs 22

Appendix II: Comments From the Department of Defense 25

Appendix III: GAO Contacts and Acknowledgments 28

Tables Table 1: Army Pilot Programs 8

Figures Figure 1: Trend in Army Funding for Acquisition and Operation and 

Maintenance, Fiscal Years 1998-2000 (then-year dollars in 

billions) 7

Abbreviations

DOD Department of Defense
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United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-284696 Letr

September 29, 2000

The Honorable James M. Inhofe

Chairman

The Honorable Charles S. Robb

Ranking Minority Member

Subcommittee on Readiness 

and Management Support

Committee on Armed Services

United States Senate

The high cost of operating and supporting the Army’s weapon systems is 

absorbing an increasing share of its budget and is reducing funds available 

for buying new systems. This, according to Department of Defense (DOD) 

officials, results in older weapons being kept in the inventory longer, 

further increasing their costs and thereby further reducing funds available 

for modernization. Operating and support costs include costs for fuel, 

repair parts, maintenance, and contract and support services, as well as for 

all civilian and military personnel associated with a weapon system. 

In April 1998, DOD established an initiative that expanded the purview of 

program managers involved in designing and producing new weapon 

systems to include more responsibility for the total life-cycle costs1

 of these 

systems. Under this initiative, each of the services was directed to 

designate 10 pilot programs to test innovative approaches to reduce 

operating and support costs. To monitor the effectiveness of this approach, 

Congress, in Section 816 (a) of the Strom Thurman National Defense 

Authorization Act for Fiscal Year 1999, directed DOD to designate and 

report to Congress on 10 of the 30 pilot programs. DOD has designated the 

10 pilot programs for section 816 (a) purposes but has not yet assessed or 

reported on their effectiveness. In conjunction with these initiatives, and to 

free up funding for its modernization efforts, in January 1999, DOD set 

broad goals for each service to lower the operating and support costs of 

weapon systems. By fiscal year 2000, systems under development are 

expected to have projected life-cycle costs 20 to 50 percent lower than the 

actual costs of the systems they are replacing. Fielded systems are 

1

 Life-cycle costs are the total costs of acquiring and owning a weapon or materiel system 

over its full life, including development, procurement, operation, support, and disposal.
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expected to reduce their actual operating and support costs by 20 percent 

by fiscal year 2005. 

Concerned about the degree to which DOD has focused on reducing 

weapon system operating and support costs, you asked us to evaluate 

DOD’s efforts in this area. This is our second report responding to your 

request. Our first report discussed the Air Force’s efforts to reduce 

operating and support costs of its weapon systems.2

 This report addresses 

the effectiveness of (1) the Army’s efforts to reduce projected operating 

and support costs for weapon systems under development and (2) the 

Army’s efforts to reduce operating and support costs of fielded weapon 

systems. We examined seven of the Army’s pilot programs. Details on the 

programs we reviewed are discussed in appendix I. 

Results in Brief The Army is unlikely to be effective in significantly reducing the projected 

operating and support costs of its weapon systems under development 

because it has not established a sufficiently high priority for operating and 

support costs and has not put the needed mechanisms in place to achieve 

such reductions. Specifically, the Army (1) has not assigned accountability 

for operating and support cost reductions nor established a requirement 

that each weapon system achieve a specific level of cost reductions and 

(2) lacks complete and reliable data on the actual operating and support 

costs of the weapon systems that are being replaced. Without a 

requirement to achieve a specific level of operating and support cost 

reductions, program managers have little incentive or priority to trade off 

acquisition cost, schedule, and performance requirements during 

development to achieve long-term operating and support cost savings. For 

the two developmental systems in our review—the Comanche helicopter 

and the Crusader Self-Propelled Howitzer—efforts are underway to 

improve the systems’ supportability, reliability, and maintainability. While 

these efforts should have an impact on the systems’ operating and support 

costs, we were unable to link any actions or tradeoffs to specific reductions 

in operating and support costs. The program managers for the Comanche 

and the Crusader focused mostly on meeting acquisition cost, schedule, 

and performance requirements. Further, the Army does not have complete 

and reliable data on the operating and support costs for systems that are 

being replaced; as a result, program managers lack the data needed to 

2 Defense Acquisitions: Higher Air Force Priority Needed to Achieve Operating and Support 

Cost Reductions (GAO/NSIAD-00-165, Aug. 29, 2000).
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accurately project operating and support costs and to determine whether 

they can achieve DOD’s goal of reducing new systems’ life-cycle costs by 

20 to 50 percent over those of the systems they are replacing. In addition, 

because the Army has not historically budgeted or managed in this way, it 

has not collected and maintained data on all elements of each weapon 

system’s operating and support costs. For example, the Army’s cost 

information system does not include data on several cost elements—

including the costs of supply maintenance or software support—for each 

weapon system because the Army does not budget for these cost elements 

at the individual weapon system level. Although the Army was unable to 

estimate their exact magnitude, the absence of these cost elements may 

have a material impact on a weapon system’s overall operating and support 

cost.

Although the Army has identified some potential reductions, its operating 

and support cost reduction efforts for fielded systems lack the priority they 

need to be effective in meeting DOD’s goals. As with developmental 

systems, the Army (1) has not assigned accountability for operating and 

support cost reductions nor established a requirement that each fielded 

system maintain these costs at or below a specific level and (2) lacks 

complete and reliable data on each system’s operating and support costs. 

Without a requirement to limit operating and support costs by individual 

weapon system, there is little incentive or priority for program managers or 

other parties influencing funding decisions to make up-front investments to 

achieve long-term operating and support cost savings, particularly if such 

investments are in lieu of near-term readiness or performance 

improvements. As a result, operating and support cost reduction efforts 

prior to the establishment of the pilot programs were limited. The pilot 

programs have initiatives that may impact operating and support costs but 

that are funded primarily to improve system performance, reliability, or 

maintainability—their impact on operating and support costs is secondary. 

For example, the Army plans to replace the engine in the Abrams tank 

primarily because reliability problems are affecting the tank’s operations. 

The improved engine is expected to save about $13 billion in operating and 

support costs over a 30-year period. However, the first of the Abrams tanks 

to be outfitted with a more reliable engine will not be fielded until 2004, and 

the amount of operating and support cost savings resulting by 2005—the 

target date for achieving DOD’s cost reduction goals—will be limited. 

Further, some pilot program managers are pursuing initiatives, such as 

contracting out logistics support, as a way to achieve cost reductions 

without an up-front investment. However, the overall Army-wide savings 

from contracting out logistics support activities have not been clearly 
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demonstrated. For example, we have reported that the projected savings 

from contracting out the Apache helicopter’s logistics support activities are 

questionable.3

 In addition to the absence of operating and support cost 

requirements, accountability for achieving the cost reduction has not been 

established. Currently, a number of officials, including the program 

manager, have some influence over decisions impacting operating and 

support costs. A new directorate has been established to bring an 

Army-wide focus to operating and support cost reduction efforts, but it has 

not been fully funded or staffed. Also, as with systems under development, 

the lack of complete and reliable operating and support cost data for 

fielded systems limits program managers’ ability to assess cost trends and 

drivers as well as to identify cost reduction initiatives.

We are recommending that the Army take steps to improve the 

management of operating and support costs for systems under 

development and fielded systems. In commenting on this report, DOD 

agreed with the general thrust of this report and that significant steps 

remain to be taken to reduce operating and support costs and generally 

agreed with our recommended actions.

Background According to DOD, operating and support costs of fielded weapon systems 

are increasing and are reducing the funds available for modernization. 

Reduced funding for new weapons is requiring the Army to keep fielded 

weapon systems in its inventory longer; this increases operating and 

support costs and further decreases funds available for modernization. The 

Under Secretary of Defense (Acquisition, Technology, and Logistics) has 

characterized this as a “death spiral.” 

Currently, DOD budgets over $40 billion a year for acquisition and 

operation and maintenance of Army weapon systems. In fiscal years 1998-

2000, the operation and maintenance4

 portion of the Army’ s budget 

averaged about $27 billion a year. Included in this amount were funds for 

civilian pay, contract services for maintenance of equipment and facilities, 

3

 Army Logistics: Status of Proposed Support Plan for Apache Helicopter

(GAO/NSIAD-99-140, July 1, 1999).

4

 The operation and maintenance appropriation provides funds for most but not all 

operating and support costs. For example, military personnel costs are not funded by the 

operation and maintenance appropriation. The Army could not provide an accurate estimate 

of its annual operating and support costs for any of its weapon systems. 
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fuel, supplies, and repair parts for weapons and equipment. As shown in 

figure 1, acquisition funds (i.e., procurement and research and 

development funds) allocated to the Army over the 3-year period decreased 

about 5 percent, from $15.3 billion to $14.5 billion, while funding for 

operation and maintenance activities increased about 19 percent, from 

$25 billion to $29.8 billion. (All funding and cost data presented in this 

report are in then-year dollars.)

Figure 1: Trend in Army Funding for Acquisition and Operation and Maintenance, 

Fiscal Years 1998-2000 (then-year dollars in billions)

Source: Our analysis of DOD appropriation data.

Historically, Army weapon system program managers have been 

responsible for development and acquisition. Their primary goals are to 

develop and produce systems (1) with the performance required by users, 

(2) on schedule, and (3) at an acceptable cost. While some attention has 

been given to the cost of operating and supporting a weapon system after it 

is fielded, responsibility for these functions after systems are fielded 

generally shifts to other Army agencies such as maintenance depots, 

software support facilities, and operating bases. DOD has long identified 

this division of responsibility as a key cause of higher weapon system 

operating and support costs, which are generally estimated to account for 

about 60 to 70 percent of a system’s total life-cycle costs. 
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In April 1998, DOD established an initiative that expanded the purview of 

program managers involved in designing and producing new weapon 

systems to include more responsibilities for the total life-cycle costs of 

these systems. This initiative directed each of the services to designate 10 

weapon system programs as pilot programs to test innovative approaches 

to reduce operating and support costs. To monitor the effectiveness of this 

approach, Congress, in Section 816 (a) of the Strom Thurman National 

Defense Authorization Act for Fiscal Year 1999, directed DOD to designate 

and report to Congress on 10 of these pilot programs. Subsequently, in a 

1999 report to Congress, DOD designated three Army pilot programs, three 

Navy pilot programs, and four Air Force pilot programs. However, DOD has 

not yet assessed or reported on the effectiveness of the pilot programs. 

Table 1 lists all of the Army pilot programs.5

Table 1: Army Pilot Programs

a

Reported to Congress under the Fiscal Year 1999 Strom Thurmond National Defense Authorization 

Act.

b

Not included in our review. 

The pilot programs are expected to examine all aspects of their operating 

and support costs and to identify innovative ways to reduce these costs 

without impacting operational readiness. Some of the actions being 

considered are changes in operational and business practices, changing 

5

 The Army originally designated 10 pilot programs. It subsequently reduced them to nine 

because of duplication.

Systems in development Fielded systems

Comanche helicopter Abrams tanka

Crusader Self-Propelled Howitzer Apache helicoptera

Advanced Fielded Artillery Tactical Data 

Systema

Cargo helicopter

Improved Target Acquisition System for the 

Tube Launched, Optically Wire Guided 

Missile

Heavy Expanded Mobility Tactical Truckb

Multiple Launch Rocket System, High 

Mobility Artillery Rocket Systemb
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maintenance processes, and improving the reliability and maintainability of 

specific system components. 

In conjunction with these initiatives, and to free up funding for its 

modernization efforts, in January 1999 DOD set two broad goals for 

lowering the operating and support costs of both fielded and 

developmental weapon systems. First, by fiscal year 2000, developmental 

weapon systems are expected to have total projected life-cycle costs 20 to 

50 percent lower than those of the systems they are replacing. For example, 

the Crusader Howitzer program, which will replace the Paladin Howitzer, is 

expected to have a projected life-cycle cost about $3 to $8 billion lower 

than that of the Paladin. Since operating and support costs make up about 

60-70 percent of a weapon system’s total life-cycle costs, the services would 

need to reduce operating and support costs by 20-50 percent in order to 

reduce overall life-cycle cost by 20-50 percent. 

Second, the annual operating and support costs of fielded systems are to be 

reduced by 20 percent by fiscal year 2005. Interim goals were also 

established: a 7-percent reduction by fiscal year 2000 and a 10-percent 

reduction by fiscal year 2001. This means that, using the fiscal year 1997 

operation and maintenance appropriation of about $20 billion as the base 

year, the Army is expected to reduce the annual operating and support 

costs of its fielded weapon systems by about $4 billion by fiscal year 2005. 

Lacking Incentives and 

Data, Army Unlikely to 

Significantly Reduce 

Operating and Support 

Costs of New Systems

Because the Army has not established specific operating and support cost 

reduction requirements for each weapon system, and because complete 

and reliable cost data is not readily available, the Army is unlikely to 

significantly reduce the operating and support costs of its systems in 

development and meet DOD’s cost reduction goals. Without a specific 

requirement, program managers are not accountable and have little 

incentive to trade off acquisition cost, schedule, and performance 

requirements during development to achieve long-term operating and 

support cost savings. Without complete and reliable data, the Army lacks a 

means to measure progress in meeting DOD’s cost reduction goals.
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Without Specific 

Requirement, Army 

Operating and Support Cost 

Reduction Initiatives Lack 

Priority

The Army does not give the same level of priority to managing long-term 

operating and support costs of developmental weapon systems as it gives 

to acquisition cost, schedule, and performance. Although operating and 

support cost estimates are required early in the acquisition process, and 

goals are sometimes established, the two developmental systems in our 

review—the Comanche and the Crusader—did not have a requirement to 

maintain their operating and support costs at or below a specific level. 

According to DOD acquisition officials, without a specific operating and 

support cost requirement during program development, program managers 

are not accountable for operating and support cost reductions and have 

little incentive or priority to trade off acquisition cost, schedule, and 

performance requirements for long-term operating and support cost 

savings. Without an operating and support cost requirement for each 

weapon system under development, the Army’s efforts to achieve these 

cost reductions are less likely to receive the priority needed to meet DOD’s 

cost reduction goals. 

An established requirement has a much greater impact on program 

priorities and trade offs than a goal. DOD Regulation 5000.2-R calls for the 

establishment of key baseline cost, schedule, and performance 

requirements to be measured, tracked, and managed. Program success is 

measured by the achievement of these requirements. Moreover, an 

operating and support cost requirement would require the same level of 

management attention as the cost, schedule, and performance parameters. 

Similarly, deviations from an operating and support cost requirement 

would also require the same senior-level review as other key requirements.

In the mid-1990s, DOD established an acquisition reform initiative to help 

control weapon system cost during design and development. The Cost as 

an Independent Variable initiative entails setting aggressive yet realistic 

cost objectives when defining operational requirements, acquiring defense 

systems, and managing achievement of objectives. This strategy is required 

for all DOD developmental programs and establishes a structured way for 

all developmental programs to consider trade offs in cost, schedule, and 

performance. However, without a requirement to maintain operating and 

support costs at or below a specific level, these trade-offs are focused 

primarily on the program’s near-term acquisition costs. DOD believes that 

the best time to reduce long-term operating and support costs is in the 

design phase of the acquisition process, but achieving such reductions 

often involves higher acquisition costs or trade offs in schedule or 

performance. 
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The program managers of the two pilot programs involving developmental 

systems—the Comanche helicopter and the Crusader Self-Propelled 

Howitzer—are using Integrated Product Teams6

 to address supportability, 

reliability, and maintainability issues, including development of strategies 

for acquisition and contracts, cost estimates, evaluation of alternatives, 

logistic management, and cost-performance trade offs. The Teams also 

monitor operating and support cost estimates and goals, organize and 

coordinate efforts to reduce the major “drivers” of support costs, and 

provide recommendations to the program manager. For example, the 

Comanche helicopter and the Crusader Self-Propelled Howitzer Integrated 

Product Teams identified the top operating and support cost drivers for 

their programs and are developing plans to reduce them. Crusader expects 

to reduce the number of personnel required to support and operate the 

weapon (support and crew personnel account for about 60 percent of its 

operating and support costs).7

 Comanche expects to improve the reliability 

and maintainability of specific components; this should have an impact on 

operating and support costs. However, without a specific operating and 

support cost requirement, program managers have little or no incentive to 

make such trade offs. Program managers for the Comanche and Crusader 

focused mostly on meeting acquisition cost, schedule, and performance 

requirements. In both of these pilot programs, we were unable to link any 

actions taken under Cost as an Independent Variable with specific 

operating and support cost reductions. The Crusader project office 

acknowledged that the only measurable effect of using Cost as an 

Independent Variable would be on development and production costs, not 

on operating and support costs.

A 1999 DOD study reported that about 80 percent of surveyed program 

management officials8

 believe that a complete estimate of a weapon 

system’s operating and support costs should be baselined early in the 

program and updated regularly to ensure visibility and measurability at 

6

 Integrated Product Teams include representatives from all appropriate disciplines working 

together.

7

 The Crusader is currently being redesigned to reduce its size and weight significantly.

8

 Program management officials include the program executive officer, who is the 

management official responsible for providing overall direction and guidance to program 

managers for development, acquisition, testing, systems integration, product improvement, 

and fielding of assigned programs and who reports directly to the Army Acquisition 

Executive.
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decision-making milestones.9 The study noted that regularly updated 

operating and support cost baselines would allow program managers to 

have visibility over these costs as the development and testing process 

proceeds, as well as before and after fielding. Although both the Crusader 

and Comanche programs have life-cycle cost estimates that are updated at 

major decision points—which are held every few years—neither program 

has regularly updated the operating and support cost portion of those 

estimates. As a result, the Comanche and Crusader program managers do 

not have good visibility over these costs nor the means to determine 

whether their operating and support cost reduction efforts are effective.

Incomplete Operating and 

Support Cost Data Hampers 

Cost Management

Complete and reliable operating and support cost data for each weapon 

system is not readily available to Army program managers because the 

Army does not collect and maintain data on all elements of a weapon 

system’s operating and support cost. In previous work on operation and 

maintenance funds, we noted that DOD’s financial management systems 

are not designed to capture the full costs of weapon systems.10 Without 

complete and reliable operating and support cost data for the systems 

being replaced—such as the Kiowa Warrior helicopter and Paladin 

Howitzer—the Army does not have an adequate baseline against which to 

measure progress in meeting DOD’s cost reduction goals for developmental 

systems such as the Comanche helicopter and Crusader Howitzer.

The Army’s Operating and Support Management Information System 

provides historical cost data on Army weapon systems and is the primary 

source of operating and support data used by program managers to project 

costs of new systems, forecast spare parts budgets, and generally manage 

their programs. The Army uses this data system to develop its operating 

and support cost budget for weapon systems for consumable items such as 

repair parts, petroleum, oil, lubricant, fuel, and ammunition, as well as for 

intermediate maintenance. However, the system does not (1) meet the 

Army’s need for total visibility of operating and support cost data, 

(2) provide a basis for an accounting of all funds used for operation and 

support, or (3) provide a complete and reliable basis for developing and 

reporting the costs of weapon system support. An official responsible for 

9 Program Manager Oversight of Life-Cycle Support, DOD Program Manager Oversight of 

Life-Cycle Support Study Group, Section 912 (c) (Oct. 1999). 

10 Defense Budget: DOD Should Further Improve Visibility and Accountability of O&M Fund 

Movement (GAO/NSIAD-00-18, Feb. 9, 2000).
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operating and support cost data at the Army’s Cost and Economic Analysis 

Center stated that the available operating and support cost data for each 

weapon system is incomplete and often 12-18 months out-of-date. Several 

operating and support cost elements that are used to establish the Army’s 

operating and support budget estimates, such as contractor logistics 

support, supply maintenance, supply depot support, and software support, 

are not included in the database. The Army was unable to estimate the 

exact magnitude of these cost elements but their absence may have a 

material impact on a weapon system’s overall operating and support cost. 

Lack of Requirements 

and Complete Cost 

Data Is Likely to Limit 

Army’s Operating and 

Support Cost 

Reductions for Fielded 

Systems

The Army has not assigned accountability for nor established a 

requirement for each fielded system to maintain its operating and support 

costs at or below a specific level. Without such a requirement, the funding 

priority for cost reduction initiatives is limited. According to Army program 

office officials, the Apache helicopter, the Abrams tank, and the Cargo 

helicopter are among the most costly Army systems to operate and support 

and offer many opportunities for operating and support cost savings. Until 

these systems were designated as pilot programs in 1999, initiatives 

specifically targeted to reduce operating and support cost were limited or 

were not often successful in competing for funding. Also, some ongoing 

initiatives were aimed primarily at achieving performance improvements, 

while operating and support cost impacts were of secondary importance. 

In some other cases, pilot program managers are pursuing operating and 

support cost reduction initiatives, such as contractor logistics support, that 

do not require up-front funding. 

Further, because cost reduction initiatives for the pilot programs are 

relatively recent, they are not projected to have a significant savings impact 

for a number of years; therefore, the Army will not likely meet the DOD 

goal of a 20-percent cost reduction by 2005. For example, the first of the 

Abrams tanks to be outfitted with a more reliable engine will not be fielded 

until 2004, and the amount of savings achieved by 2005 will be limited. 

Likewise, plans to upgrade the engine and reduce vibration in the Cargo 

helicopter will result in only a limited number of refurbished aircraft being 

fielded by fiscal year 2004, and any reduction in operating and support 

costs by 2005 will be limited. Finally, the lack of complete and reliable cost 

data makes it difficult for Army program managers to assess and manage 

these costs. Better data is needed to assess operating and support cost 

trends and cost drivers and to identify cost reduction initiatives. Details of 

the fielded systems’ cost reduction initiatives that we reviewed are in 

appendix I.
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Earlier Efforts to Reduce 

Operating and Support 

Costs Were Limited 

Without a requirement that each system maintain its operating and support 

costs at or below a specific level, there is little incentive for program 

managers to request up-front investments to achieve long-term operating 

and support cost savings, particularly if such investments are in lieu of 

near-term readiness or performance improvements. Throughout much of 

the late 1990s, the Army has had three efforts in place to identify and 

implement cost reduction projects, but due to other, higher funding 

priorities, these efforts have not resulted in significant operating and 

support cost reductions in fielded weapon systems. The three efforts are 

(1) supply management, Army operating and support cost reductions;

(2) commercial operating and support savings initiative; and (3) reliability, 

maintainability, and sustainability operating and support cost reductions. 

Each of these efforts provides funding for cost reduction projects involving 

the redesign of individual spare parts and certain maintenance 

improvements. According to the program coordinator, these projects are 

limited in scope and, due to their limited funding, have not had a significant 

impact on operating and support costs. For example, projected funding for 

the Army’s reliability, maintainability, and sustainability initiative totals 

only $14 million for fiscal years 2000-05. This level of funding will support 

only a small portion of the proposed cost reduction projects under the 

initiative. The latest list of proposed Army reliability, maintainability, and 

sustainability cost reduction projects for fiscal year 2002 alone contains 25 

projects estimated to cost a total of about $50 million. Overall, the program 

coordinator estimates that about $200 million a year would be needed to 

fully fund all potential projects under this initiative. 

Operating and Support Cost 

Reductions Are a Secondary 

Priority

Operation and support cost reduction efforts require up-front investments 

for long-term returns, and the Army has been reluctant to make a 

commitment to these investments. However, it has been willing to invest in 

performance enhancement initiatives with indirect operating and support 

cost savings. As a result, projected reductions in operating and support 

costs for some pilot programs are not the product of a separate initiative, 

but the by-product of efforts to upgrade the system’s performance 

capabilities. For example, the Army plans to replace the engine in the 

Abrams tank primarily because reliability problems are affecting the tank’s 

operations. Secondarily, the Army projects that the engine replacement, 

which will cost over $2 billion, will save $13 billion in operating and 

support costs over 30 years. Similarly, planned vibration reduction and 

engine upgrades to the Cargo helicopter are primarily to improve operating 

performance, readiness, and safety. Although the cost of the upgrades has 
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not yet been determined, they are projected to reduce operating and 

support costs by an estimated $2.6 billion over 20 years. 

Some Program Managers 

Pursuing Contractor 

Support Initiatives to 

Reduce Operating and 

Support Cost 

In the absence of a requirement for each system to maintain its operating 

and support costs at or below a specific level and a lack of direct control or 

influence over operating and support functions or funds, pilot program 

managers have sought alternative ways of reducing system costs. For 

example, some managers of pilot programs—such as the Apache 

helicopter—are pursuing contractor logistic support initiatives, in which a 

contractor is responsible for many system support functions. Through 

these initiatives, program managers expect to achieve significant operating 

and support cost savings, as well as more direct control over support 

activities and funding. However, the overall Army-wide cost savings from 

these initiatives that contract out logistics support have not been clearly 

demonstrated. For example, we reported that the level of savings projected 

from contracting out the Apache helicopter’s logistics support activities is 

questionable. Moreover, program managers can only influence, but cannot 

decide, whether to rely on contractor support or on the Army’s depot 

maintenance support capability.

No Clear Accountability for 

Operating and Support Cost 

Reductions

In addition, operating and support costs and functions for each weapon 

system are managed by a variety of Army organizations, many of them 

outside the program manager’s office. Different organizations control daily 

operations (such as training, tactical deployments, and day-to-day 

maintenance) of the weapons, depot maintenance, transportation, supply, 

and other activities. Program managers have little control or influence over 

these organizations; as a result, they have limited control over major 

operating and support costs drivers. For example, local commanders 

decide the spending priority for all operation and maintenance funds 

received at the command level. Program managers needing weapon system 

support funds must compete annually with other weapon systems and 

other support activities at the local command level and have no guarantee 

that support funding will be available to them when they need it. To bring 

increased Army-wide focus—beyond the program manager—to operating 

and support cost reduction efforts, the Army established a Total Ownership 

Cost Directorate in 1999 to (1) consolidate the management of the Army’s 

operating and support cost reduction initiatives and (2) provide leadership, 

guidance, and implementation of weapon system cost reduction initiatives. 

The centralized Directorate is expected to elevate weapon system cost 

reduction initiatives to senior management level and to optimize the 
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allocation of operating and support cost reduction funding Army-wide. 

However, an official from the Assistant Secretary of the Army (Acquisition, 

Logistics, and Technology) office acknowledged that funding for the 

Directorate would most likely not be available until at least fiscal year 2002. 

The Directorate is operating with temporary personnel borrowed from 

other Army elements and with a reserve officer.

Data Limitations Impact 

Operating and Support Cost 

Management for Fielded 

Systems 

The lack of complete data on each fielded system’s operating and support 

costs makes it difficult for Army managers to assess and manage these 

costs. The Cargo helicopter program best illustrates the need for additional 

operating and support cost data. The program manager awarded a contract 

to have a new operating and support cost baseline developed by October 

2000 to gain more insight into the causes of the aircraft’s high operating and 

support costs and to collect data on maintenance events at the individual 

aircraft level. The program manager did so because the Army’s operating 

and support cost data system can provide data on a weapon system’s total 

spare part consumption but cannot provide more specific data on which 

weapon system used which parts and the costs to install each of the parts. 

According to the program manager, it is impossible to assume management 

responsibility for operating and support cost reduction initiatives if the 

weapon system’s total operating and support costs or the reasons for those 

costs are unknown. 

Cost data on individual maintenance events, such as removal and 

assessment of part failures, are not available from the Army’s operating and 

support cost database. For example, the cost of removing and assessing a 

suspected faulty component and replacing the same component is not 

available from the database. Although the Army’s Operating and Support 

Management Information System was not designed to provide this sort of 

data, we believe it is this kind of operating and support cost data that is 

needed by Army program managers to assess cost trends and cost drivers 

and to identify cost reduction initiatives. 

Conclusions The Army is not likely to significantly reduce the operating and support 

costs of its weapon systems and, therefore, will not likely meet DOD’s cost 

reduction goals. Hence, the “death spiral” of increasing operating and 

support costs and decreasing funds for modernization will likely continue.

The primary reason the Army is not likely to be successful is because it has 

not granted a sufficiently high priority to operating and support cost 
B-284696

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reductions nor put a mechanism in place to achieve cost reductions. 

Specifically, without a requirement to achieve a specific level of operating 

and support cost savings, program managers have little incentive or 

priority to trade off acquisition costs, schedule, and performance 

requirements during development to achieve long-term operating and 

support cost savings. An operating and support cost requirement would 

have a much greater impact on program priorities and would require the 

same level of management attention as the cost, schedule, and 

performance parameters. Similarly, deviations from an operating and 

support cost requirement would also require the same senior-level review 

as other key requirements. In addition, program managers do not have 

complete and reliable data needed to identify and track operating and 

support costs. Without complete and accurate cost data, program managers 

are unable to assess cost trends and cost drivers and to identify cost 

reduction opportunities.

Further, there is no clear accountability for operating and support cost 

reductions. A number of officials, including the program manager, have 

some influence over decisions impacting operating and support costs. The 

Army established the Total Ownership Cost Directorate to, among other 

things, bring increased Army-wide focus to operating and support 

reduction efforts. However, initial funding for the directorate was not 

expected to be available until fiscal year 2002.

Recommendations To increase the priority of and to provide the mechanisms needed to 

achieve significant reductions in operating and support costs, we 

recommend that the Secretary of Defense direct the Secretary of the Army 

to 

• establish operating and support cost requirements for developmental 

and fielded systems and regularly monitor each system’s progress in 

meeting the requirement,

• develop a more complete and accurate accounting of each weapon 

system’s operating and support costs by expanding the Army’s current 

cost data system to include additional cost elements such as software 

and supply system support costs, and

• promptly provide the necessary funding and staffing to fully establish 

the Total Ownership Cost Directorate.
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Agency Comments and 

Our Evaluation

In written comments on a draft of this report, DOD agreed that significant 

steps remain to be taken to reduce operating and support costs and 

generally agreed with our recommended actions. DOD also stated that it 

shares some of our concerns about the pace, risk, and costs associated 

with reducing operating costs and acknowledged the difficulty of devising a 

strategy that allows meaningful cost reductions while focusing on its 

highest priorities—improving safety, readiness, and combat capability. 

DOD noted that pilot programs are investigating various cost reduction 

approaches, but that it was too soon to determine which approaches would 

yield the best results.

DOD generally agreed with our recommendation for establishing operating 

and support cost requirements for developmental and fielded systems. For 

developmental systems, DOD asserted that a newly established process has 

already improved the Army’s evaluation of operating and support costs by 

establishing those costs as co-equals with schedule and performance 

requirements. We found, however, that the Army’s new policy makes 

supportability, rather than operating and support costs, a co-equal with 

cost, schedule, and performance. As a result, it does not specifically 

increase the priority needed to reduce these costs. For fielded systems, 

DOD believes that its efforts to track all operating and support costs 

elements are still evolving and that it is premature to establish a cost 

reduction requirement. While we agree that efforts to track all operating 

and support cost elements is still evolving, we believe that the Army’s 

Operating and Support Management Information System can be modified 

to provide useful and timely data to track and manage the operating and 

support costs of fielded systems. As a result, we believe that our 

recommendation for an operating and support cost requirement for both 

fielded and developmental systems is still valid. 

DOD generally agreed with our second recommendation that the Secretary 

of the Army develop a more complete and accurate accounting of each 

weapon system’s operating and support costs. DOD stated that, as lessons 

and data are gleaned from the pilot programs (which are intended to 

examine all aspects of operating and support costs and identify innovative 

ways to reduce those costs), an alternative operating and support cost data 

system may be adopted. DOD also stated that it has several actions and 

activities that are under way to accomplish the objective of more complete 

and accurate accounting of operating and support costs but then went on 

only to mention an information system already in use. We continue to 

believe that improvements can and should be promptly made to the current 
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Page 19 GAO/NSIAD-00-197 Defense Acquisitions

information system in order to improve operating and support cost 

information and visibility. 

DOD generally agreed with our third recommendation that the Secretary of 

the Army promptly provide the necessary funding and staffing to fully 

establish the Total Ownership Cost Directorate. DOD stated that the Army 

already has ongoing efforts to support the Total Ownership Cost initiatives. 

In discussion with an Army official from the Office of the Assistant 

Secretary of the Army (Acquisition, Logistics, and Technology), we learned 

that the Army has increased its staffing of the Total Ownership Cost 

Directorate from three to seven permanent personnel and has slated 

additional staffing increases for fiscal years 2001 and 2002. We are 

encouraged by the Army’s decision to provide additional staffing for the 

Directorate. However, the appropriate staffing level needed by the 

Directorate to fulfill its objective of bringing increased Army-wide focus to 

operating and support cost reduction efforts is not yet known and will 

depend, in large part, on the overall priority given to those efforts. 

DOD’s comments are reprinted in appendix II. DOD also provided some 

technical comments, which we incorporated in the report where 

appropriate.

Scope and 

Methodology

Although the Army originally designated 10 programs as pilots, it 

subsequently reduced them to 9 because of duplication. We reviewed seven 

of the pilot programs’ implementation plans and their operating and 

support cost reduction initiatives. Because of similarities in the pilot 

programs and time constraints, we only selected seven of the programs for 

inclusion in our review: Apache helicopter; Abrams tank; Cargo helicopter; 

Improved Target Acquisition System for the Tube Launched, Optically Wire 

Guided Missile; Advanced Field Artillery Tactical Data System; Comanche 

helicopter; and Crusader Self-Propelled Howitzer.

To assess the effectiveness of the Army’s efforts to reduce projected 

operating and support costs for weapon systems under development, we 

reviewed and evaluated the Comanche helicopter’s and the Crusader 

Self-Propelled Howitzer’s cost reduction implementation plans and other 

pertinent program office documentation. Additionally, we interviewed key 

personnel in the program office and discussed the plans with cognizant 

DOD and Army officials. 
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To assess the effectiveness of the Army’s efforts to reduce operating and 

support costs of fielded weapon systems, we reviewed and evaluated 

operating and support cost reduction implementation plans for the Abrams 

tank, the Apache helicopter, the Advanced Field Artillery Tactical Data 

System, the Cargo helicopter, and the Improved Target Acquisition System 

for the Tube Launched, Optical Wire Guided Missile. We also reviewed and 

evaluated operating and support cost data in the Army’s Operating and 

Support Management Information System for fielded systems. 

We also reviewed other pertinent documents and interviewed key 

personnel at DOD, Army, Army Cost and Economic Analysis Center, and 

weapon system program offices.

We obtained documents and interviewed officials from the offices of the 

Secretary of Defense and the Army, Washington, D.C.; the U.S. Army 

Aviation and Missile Command, Huntsville, Alabama; the National Guard 

Aviation Support Facility, Birmingham, Alabama; the 101st Airborne 

Division, Fort Campbell, Kentucky; and the Army Materiel Command, 

Alexandria, Virginia. Additionally, we held video teleconferences with the 

Program Executive Officer for Ground Combat Support Systems, Picatinny 

Arsenal, New Jersey; the U.S. Army Tank and Automotive Command, 

Warren, Michigan; and the U.S. Army Communication and Electronics 

Command, Fort Monmouth, New Jersey.

We conducted our review from July 1999 through July 2000 in accordance 

with generally accepted government auditing standards.

We are sending copies of this report to other interested congressional 

committees; the Honorable William Cohen, Secretary of Defense; the 

Honorable Louis Caldera, Secretary of the Army; and the Honorable 

Jacob Lew, Director, Office of Management and Budget. Copies will also be 

made available to others on request.
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Page 21 GAO/NSIAD-00-197 Defense Acquisitions

If you have any questions regarding this report, please contact me on 

(202) 512-4841. GAO contacts and major contributors to this report are 

listed in appendix III.

James F. Wiggins

Director, Acquisition and Sourcing Management
Page 22 GAO/NSIAD-00-197 Defense Acquisitions

Appendix I

Details of Operating and Support Cost Apendxies

Reduction Initiatives for Fielded System Pilot 

Programs ApendxiI

Apache Helicopter The Apache helicopter is the most costly Army system in terms of annual 

operating and support costs. To aid in reducing these costs, the Apache 

program manager has created an Integrated Product Team as the primary 

tool for identifying cost reduction opportunities. The team’s focus has been 

on addressing the Apache’s top operating and support cost drivers. 

According to the program manager, the team has been successful in 

identifying and implementing many operating and support cost saving 

initiatives, at a cost of $4.74 million. 

The program office estimates that the ongoing initiatives will achieve over 

$434 million in total projected operating and support cost savings over 

10 years. For example, cost reduction efforts associated with the Apache’s 

tail and main rotor alone have potential cost reductions of about

$44 million. Under the pilot program, the Apache program manager plans to 

manage operating and support cost reduction efforts through the Prime 

Vendor Support concept, which uses a single contractor to provide all 

weapon system support (support is currently being managed by several 

Army organizations). The program office estimates that this concept will 

result in about $380 million in operating and support cost savings over

5 years. However, DOD has questioned the projected savings under this 

concept, and the implementation plan is controversial because, among 

other things, it would require the Army to give the entire Apache spare 

parts inventory, estimated to be worth about $1 billion, to the contractor 

without compensation. A decision on the Prime Vendor Support concept 

was pending at the time we completed our review. 

Abrams Tank According to the program office, the Abrams tank is the second most costly 

Army system in terms of annual operating and support costs and accounts 

for half the repair parts costs by the Army’s entire ground combat fleet. 

According to the Abrams program manager, the tank engine is a major 

contributor to the system’s high operating and support costs. The Abrams 

program has recently received about $1 billion in investment funds to begin 

an initiative that will focus on replacing the current engine with an 

improved one. While this initiative is designed to improve the tank engine’s 

performance, it will indirectly reduce operating and support costs. The 

engine initiative is estimated to cost a total of about $2 billion and yield a 

projected $13 billion in operating and support cost savings over 30 years.
Appendix I

Details of Operating and Support Cost 

Reduction Initiatives for Fielded System 

Pilot Programs

Page 23 GAO/NSIAD-00-197 Defense Acquisitions

Cargo Helicopter The Cargo helicopter is the fourth most costly Army system in terms of 

annual operating and support costs. The program manager has initiated 

two initiatives designed to improve the performance and reduce the 

operating and support costs of the helicopter by an estimated $2.6 billion 

over 20 years. The first initiative is a vibration reduction effort, which will 

involve the remanufacturing of the aircraft’s airframe. The effort is based 

on analyses of vibration studies conducted by the Army, the Navy, the Air 

Force, and civilian institutions. According to the program manager, 

eliminating excessive vibration, which causes the airframe to crack and 

other components to break, will increase the aircraft’s reliability by 

minimizing hardware failures, thereby enhancing its performance and 

readiness. According to the program manager, the effort will cost an 

estimated total of about $120 million and will yield long-term operating and 

support cost savings of about $1 billion. 

The second initiative involves converting the helicopter’s engine to be more 

fuel-efficient. This will involve the replacement of all magnesium 

components with aluminum or stainless steel, which will significantly 

reduce engine corrosion and are expected to reduce significantly operating 

and support costs. The upgrade is estimated to cost about $1.2 billion. 

Operating and support cost savings have not yet been determined.

In this pilot program, the program manager’s approach to operating and 

support cost reduction is different from others in our review. While other 

pilot programs consider only system hardware or personnel cost drivers as 

the sole basis when planning operating and support cost reductions, the 

Cargo helicopter program manager also plans to consider non-hardware 

issues such as the frequency of scheduled maintenance or training. The 

aircraft’s maintenance manual will be reviewed to determine whether it still 

requires certain repairs, and computer-based maintenance training that can 

be transported Army-wide has been developed to limit costly downtime. 

Improved Target Acquisition 

System for the Tube 

Launched, Optically Wire 

Guided Missile

The Improved Target Acquisition System for the Tube Launched, Optically 

Wire Guided Missile was originally designed with reduced operating and 

support costs in mind. According to a program office official, operating and 

support costs were reduced because the number of reparable components 

was reduced by over 60 percent, built-in testing was improved, and the 

need for additional test equipment was eliminated. Further, the program 

manager plans to use only contractor logistical support for the system. The 

official stated that by implementing a contractor logistical support concept, 
Appendix I

Details of Operating and Support Cost 

Reduction Initiatives for Fielded System 

Pilot Programs

Page 24 GAO/NSIAD-00-197 Defense Acquisitions

rather than using depot support, the Army expects to reduce operating and 

support costs by $300 million over the life of the program.

Advanced Field Artillery 

Tactical Data System

The Advanced Field Artillery Tactical Data System is a heavily softwareoriented program. One operating and support cost reduction initiative the 

project office plans will reduce the size of its computer from 300 to 

100 pounds. The new computer is expected to cost less to operate and 

support. The program manager has not yet calculated the reduced 

operating and support costs of the new computer. 
Page 25 GAO/NSIAD-00-197 Defense Acquisitions

Appendix II

Comments From the Department of Defense ApendxiI
Appendix II

Comments From the Department of Defense

Page 26 GAO/NSIAD-00-197 Defense Acquisitions

Now on p. 17.

Now on p. 17.

Now on p. 17.
Appendix II

Comments From the Department of Defense

Page 27 GAO/NSIAD-00-197 Defense Acquisitions
Page 28 GAO/NSIAD-00-197 Defense Acquisitions

Appendix III

GAO Contacts and Acknowledgments ApendxiI

GAO Contacts James F. Wiggins (202) 512-4841

William Graveline (256) 650-1414 

Acknowledgments In addition to those named above, Leon S. Gill, William Petrick, and 

Wendy Smythe made key contributions to this report.

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