a

GAO

United States Government Accountability Office

Report to the Subcommittee on 

Defense, Committee on Appropriations, 

U.S. Senate

March 2005 DEFENSE 

ACQUISITIONS

Information for 

Congress on 

Performance of Major 

Programs Can Be 

More Complete, 

Timely, and Accessible

GAO-05-182
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-182.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Robert E. Levin 

at (202) 512-4841 or levinr@gao.gov. 

Highlights of GAO-05-182, a report to the 

Subcommittee on Defense, Committee on 

Appropriations, U.S. Senate 

March 2005

DEFENSE ACQUISITIONS 

Information for Congress on Performance 

of Major Programs Can Be More 

Complete, Timely, and Accessible 

DOD could be reporting more complete information beyond what is required 

by law on the unit cost performance of major defense acquisition programs 

to Congress for its authorization and appropriations deliberations. DOD does 

present Congress with valuable information about a program’s performance 

by comparing the latest unit cost estimate against the most recent approved 

baseline. However, this provides only one perspective on performance 

because rebaselining shortens the period of performance reported and resets

the measurement of cost growth to zero. Other meaningful perspectives are 

not reported. First, DOD does not report the cumulative unit cost growth, in 

constant dollars, that a program has experienced since the first full baseline 

was established. For example, DOD reported in the 2003 Selected 

Acquisition Report (SAR), the most recent available, that the F/A-22 Raptor 

program’s unit cost decreased by 0.33 percent in the previous 4 months—

since the latest rebaselining. DOD did not report that the program’s unit cost 

had cumulatively increased by 72 percent in the last 143 months. Second, the 

change in unit cost between one budget request to Congress and the next is 

not measured or reported. For example, DOD reported in the 2003 SAR that 

unit cost for the Stryker program increased by 1.34 percent in the 2 months 

since the latest rebaselining; it did not report that unit cost had grown by 21 

percent in the previous 12 months. 

DOD could be more timely in reporting to Congress that it has rebaselined 

individual programs. A key factor is that DOD is not required by statute or its 

own policies to report a program’s rebaseline to Congress. Although DOD 

includes the latest rebaselining actions in the April SARs, a rebaseline 

approved after early April may not be reported to Congress before it enacts 

the authorization and appropriations legislation. For example, the DD(X) 

Destroyer program established a new baseline on April 23, 2002, but did not 

report this new baseline to Congress in a SAR until April 2003. As a result, 

between April 2002 and the passage of the fiscal year 2003 defense budget, 

the SAR provided Congress did not reflect the approved baseline for the 

DD(X) program. 

Congressional oversight of DOD’s adherence to established cost and 

schedule baselines is unnecessarily constrained because DOD classifies 

about 50 percent of the SARs it submits to Congress, despite the fact that 

only a small amount of data in each of these SARs is actually classified. This 

reporting practice restricts access to the unclassified cost, quantity, and 

schedule data for congressional staff without security clearances and 

requires special handling procedures of that unclassified data by those with 

clearances. 

DOD has more than $1 trillion 

worth of major defense acquisition 

programs, on which it must report 

to Congress, including a 

comparison of a current program’s 

costs to a baseline containing its 

cost, quantity, schedule, and 

performance goals. When these 

goals are changed, the program is 

“rebaselined” to reflect current 

status. However, measuring 

current estimates against the most 

recent baseline without additional 

perspectives may obscure for 

Congress how programs are 

performing over time. 

Concerned over this, you asked 

GAO to examine how DOD’s use of 

rebaselining has affected the 

adequacy of data provided to 

Congress on major defense 

acquisition programs. 

What GAO Recommends

To provide Congress with more 

complete, timely, and accessible 

information, GAO recommends 

that the Secretary of Defense 

implement the following changes: 

measure and report a full history of 

unit cost performance in constant 

dollars; notify Congress when a 

program is rebaselined; and 

separately report classified and 

unclassified data. 

DOD concurred with GAO’s 

recommendations. 
Page i GAO-05-182 Defense Acquisitions 

Letter 1

Results in Brief 2 

Background 3 

Information for Congress on Unit Cost Performance Could Be 

More Complete 7 

Reporting of Rebaselinings Could Be More Timely and Unclassified 

Data Is Unnecessarily Restricted 12 

Conclusions 14 

Recommendations for Executive Action 14 

Matters for Congressional Consideration 15 

Agency Comments and Our Evaluation 15 

Appendix I Scope and Methodology 17 

Appendix II Comments from the Department of Defense 18 

Tables 

Table 1: Examples of the Highest Number of Rebaselinings 8 

Table 2: Examples Showing Cumulative Changes to Unit Cost Not 

Reported, in Constant Dollars 8 

Table 3: F/A-18E/F Effects of Inflation on Reporting Cost Changes 9 

Table 4: Illustration of Differences in PAUC Calculations When 

Annual Changes Are Shown 10 

Table 5: Example of the Impact of Programmatic Adjustments in 

the Comanche Helicopter Program 11 

Table 6: PAUC growth and Nunn-McCurdy Determinations from 

2001 to 2003, in Percent 12 

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

Rebaselines to Congress 13 

Contents 
Page ii GAO-05-182 Defense Acquisitions 

Abbreviations 

AAWS-M Advanced Anti-Tank Weapon System-Medium 

AEHF Advanced Extremely High Frequency Satellites 

AMRAAM Advanced Medium Range Air-to-Air Missile 

APB Acquisition Program Baseline 

APUC Average Procurement Unit Cost 

CMUP Conventional Mission Upgrade Program 

DOD Department of Defense 

FBCB2 Force XXI Battle Command Brigade and Below 

FMTV Family of Medium Tactical Vehicle 

JASSM Joint Air-to-Surface Standoff Missile 

RDT&E Research, Development, Testing, and Evaluation 

NAS National Airspace System 

PAUC Program Acquisition Report 

SAR Selected Acquisition Report 

SM-2 Standard Missle-2 

SSN-21 High Speed Submarine Nuclear Combat System 

USMC United States Marine Corps 

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Page 1 GAO-05-182 Defense Acquisitions 

March 28, 2005 

The Honorable Ted Stevens 

Chairman 

Subcommittee on Defense 

The Honorable Daniel I. Inouye 

Ranking Minority Member 

Subcommittee on Defense 

Committee on Appropriations 

United State Senate 

The Department of Defense (DOD) has more than $1 trillion worth of 

major defense acquisition programs1

 in development and production. For 

the purposes of congressional oversight and decision making, DOD is 

required by law to report to Congress the unit costs (costs divided by 

quantities) for each program. DOD reports this unit cost for both the 

current budget estimate and the most recent acquisition program baseline, 

which describes the cost, quantity, schedule, and performance goals of a 

program. 2 DOD reports these comparisons in a Selected Acquisition 

Report (SAR).3

 These reports, typically provided in early April, aid the 

Congress during its deliberations over the defense authorization and 

appropriations legislation. 

As an acquisition program proceeds, DOD may determine that the original 

baselined goals approved by decision makers are unachievable. Under 

such circumstances, DOD will “rebaseline” the program so the goals more 

realistically reflect the program’s current status. However, to the extent 

that current estimates are only measured against the most recent baseline, 

 1

 Major defense acquisition programs are defined as those estimated as requiring an 

eventual total expenditure for research, development, test, and evaluation of more than 

$365 million or for procurement of more than $2.190 billion in fiscal year 2000 constant 

dollars. Using constant dollars removes the effects of inflation and shows all dollars at the 

value they would have in a selected base year. All cost figures in this report are presented 

in constant dollars, unless otherwise noted. 

2

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

3

 10 U.S.C. § 2432 establishes the SAR requirements, which include providing cost 

information to Congress. Another statute, 10 U.S.C. § 2433, establishes the requirement for 

unit cost reports. If certain program cost increase thresholds are exceeded (known as unit 

cost or Nunn-McCurdy breaches), DOD is required to report to Congress and, if applicable, 

certify the program to Congress. 

 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-05-182 Defense Acquisitions 

Congress may not be getting in each SAR a clear picture on just how well 

programs are performing over time. 

Concerns over these issues led you to request that we evaluate how DOD’s 

use of rebaselining has affected the adequacy of data provided to Congress 

on the performance of major defense acquisition programs. To address 

this objective, we assessed SAR cost, schedule, and quantity data for 

individual acquisition programs using federal control criteria4

 such as 

accuracy, completeness, timeliness, and accessibility. This report focuses 

on (1) the completeness of unit cost reporting and (2) the timeliness of 

reporting on rebaselining and the accessibility of unclassified data. 

In conducting our review, we reviewed pertinent statutes and DOD 

acquisition system guidance; analyzed more than 650 SARs, both quarterly 

and annual, of all major defense acquisition programs for the period 1996 

to 2003; and interviewed cognizant DOD officials. We conducted our work 

from February 2004 to January 2005 in accordance with generally 

accepted government auditing standards. 

DOD could be reporting more complete information beyond what is 

required by law on unit cost performance to Congress for its authorization 

and appropriations deliberations. DOD does present Congress with 

valuable information about a program’s performance by comparing the 

latest unit cost estimate against the most recently approved baseline. 

However, this provides only one perspective on performance because 

rebaselining shortens the period of performance reported and resets the 

measurement of cost growth to zero. Other meaningful perspectives are 

not reported. For example, DOD reported in the 2003 SAR, the most recent 

available, that the F/A-22 Raptor program’s unit cost decreased by 0.33 

percent in the previous 4 months—since the latest rebaselining. DOD did 

not report that the program’s unit cost had cumulatively increased by 72 

percent in the last 143 months. Second, the change in unit cost between 

one budget request to Congress and the next is not measured or reported. 

For example, DOD reported in the 2003 SAR that unit cost for the Stryker 

program increased by 1.34 percent in the 2 months since the latest 

 4

 GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

Washington, D.C.: November 1999) and GAO, Internal Control Management and 

Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001). 

Results in Brief 
Page 3 GAO-05-182 Defense Acquisitions 

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

previous 12 months. 

DOD could be more timely in reporting to Congress that it has rebaselined 

individual programs. A key factor is that DOD is not required by statute or 

its own policies to report a program’s rebaseline to Congress. Although 

DOD includes the latest rebaselining actions in the April SARs, a 

rebaseline approved after early April may not be reported to Congress 

before it enacts the authorization and appropriations legislation. Although 

the DD(X) Destroyer program established a new baseline on April 23, 

2002, for example, it did not report it to Congress in a SAR until April 2003. 

As a result, between the April 2002 SAR and the passage of the fiscal year 

2003 defense budget, the SAR provided to Congress did not reflect the 

approved baseline for the DD(X) program. 

DOD classifies about 50 percent of the SARs it submits to Congress, 

despite the fact that only a small amount of data in each of them is actually 

classified. This classification and reporting policy restricts access to the 

unclassified cost, quantity, and schedule data for congressional staff 

without security clearances and requires special handling procedures of 

that unclassified data by those with clearances. As a result, congressional 

oversight of DOD’s adherence to established cost and schedule baselines 

is unnecessarily constrained. 

Taken altogether, current reporting policies and practices for rebaselining 

could be improved to provide more useful information to decision makers 

and strengthen accountability for performance. This report makes 

recommendations that the Secretary of Defense strengthen the SARs for 

major defense acquisition programs by requiring them to be more 

complete, timely, and accessible. DOD concurred with our 

recommendations and provided technical comments, which were 

incorporated, as appropriate. 

In 1967, to obtain consistent, reliable data on major defense acquisition 

programs, DOD instituted a reporting system to summarize program cost, 

schedule, and performance information called the SAR. The purpose was 

to focus management attention on a program’s performance and changes 

Background 
Page 4 GAO-05-182 Defense Acquisitions 

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

reporting requirement to Congress.5

Consistent with statute, DOD requires an acquisition program baseline at 

program initiation that establishes objective and threshold values for cost, 

quantity, schedule, and performance parameters. Objective values 

represent what the user desires and expects. Thresholds represent the 

acceptable limits to those values that, in the user’s judgment, still provide 

the needed capability. The acquisition program baseline is derived from 

the user’s performance and schedule needs and the best estimates of total 

program cost consistent with projected funding. 

A baseline, according to DOD acquisition guidance,6

 consists of the 

following: 

• Performance parameters—-The total number of performance 

parameters should be the minimum number needed to characterize the 

major drivers of operational performance. The number and specificity 

of performance parameters may change over time. 

• Schedule parameters—-Schedule parameters should include, at a 

minimum, the projected dates for program initiation, other major 

decision points, and initial operating capability. The program manager 

may propose, and the milestone decision authority7

 may approve, other 

critical system events. 

• Cost parameters—-Cost parameters should reflect realistic cost 

estimates of the total program and/or increment, and should be 

identified as life-cycle cost. The elements of program life-cycle cost 

include 

• research, development, test, and evaluations; 

• procurement costs; 

• military construction costs; 

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

 5

 Public Law 94-106, § 811. 

6

 Defense Acquisition Guidebook, dated 2004, Chapter 2.1.1, The Acquisition Program 

Baseline. 

7

 The milestone decision authority is a designated DOD individual with the authority to 

approve entry of an acquisition program into the next phase of the acquisition process and 

is accountable for cost, schedule, and performance reporting to higher authority, including 

congressional reporting. 
Page 5 GAO-05-182 Defense Acquisitions 

• total system quantity (to include both fully configured development 

and production units); 

• average procurement unit cost (defined as total procurement cost 

divided by total procurement quantity); 

• program acquisition unit cost (defined as the total of all acquisitionrelated appropriations divided by the total quantity of fully configured 

end items); and 

• any other cost objectives established by the milestone decision 

authority. 

The defense acquisition management framework defines the stages 

through which typical programs proceed. As each stage concludes, a 

decision must be made to initiate, continue, advance, adjust, or terminate 

a project or program work effort or phase. The review associated with 

each of these decision points typically addresses program progress and 

risk, affordability, program trade-offs, acquisition strategy updates, and the 

development of exit criteria for the next phase or effort. The milestone 

decision authority is responsible for approving the program structure as 

part of the acquisition strategy. Milestone decision points are Milestone A, 

for entry into the technology development phase; Milestone B, for entry 

into the system development and demonstration phase (acquisition 

program initiation); and Milestone C, for entry into the production and 

deployment phase. 

There are three fixed acquisition program baselines (APB) tied to these 

milestone decisions. The concept baseline approved at Milestone A; the 

development baseline approved at Milestone B; and the production 

baseline approved at Milestone C. This first full estimate, generally 

established at Milestone B, is sometimes referred to as the original 

business case for the program. All estimates include a mix of both sunk 

and projected remaining costs. 

Programs are rebaselined based on a change in requirements, a change in 

acquisition phase, or a program restructuring. They are also rebaselined 

when there is a realized cost overrun or schedule slip beyond certain 

thresholds. Rebaselining can occur at any time and cover any phase of the 

defense acquisition program. All rebaselines must be approved by the 

milestone decision authority. A program may therefore have several 

approved program baselines during development, but only one currently 

approved program baseline. Programs also monitor a current estimate of 

the elements of a baseline and report differences as they develop. 
Page 6 GAO-05-182 Defense Acquisitions 

Recognizing the need to establish a monitoring mechanism to provide 

oversight of cost growth in DOD major defense acquisition programs, 

Congress has required8

 DOD to (1) notify Congress whenever unit cost 

growth is at least 15 percent, and (2) “certify” the program to Congress 

when the unit cost growth is at least 25 percent above the latest approved 

acquisition program baseline cost estimate.9

 However, Congress did not 

require DOD to report when a program has been rebaselined. 

The reporting requirement is commonly referred to as Nunn-McCurdy, 

after the congressional leaders responsible for the requirement.10

Exceeding either the 15 or 25 percent unit cost threshold is referred to as a 

Nunn-McCurdy unit cost breach. The unit cost reporting includes two 

elements—program acquisition unit cost (PAUC) and procurement unit 

cost (PUC). 11 DOD refers to the PUC as the average procurement unit cost 

(APUC). Unit cost is considered a key measure because it describes 

buying power—the average cost to buy each unit. 

Unit cost information is submitted to Congress in DOD’s annual 

comprehensive SARs. In addition to the comprehensive annual report to 

Congress for the period ending December 31, DOD also prepares a 

quarterly report for the second, third, and fourth quarters of the fiscal year 

when there has been 

• an increase of 15 percent or greater in the current estimate of the 

program acquisition unit cost or average procurement unit cost in baseyear dollars; 

 8

 10 U.S.C. § 2433. 

9

 A breach of the 25 percent threshold requires the Secretary of Defense to certify that the 

program is (1) essential to national security, (2) no alternatives exist which will provide 

equal or greater military capability at less cost, (3) new unit acquisition or procurement 

cost estimates are reasonable, and (4) the management structure is adequate to control 

unit cost. 

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

11 In essence, PAUC includes both the total costs and total quantities, while PUC only 

includes procurement costs and procurement quantities. By law, PAUC is an amount equal 

to the total cost for development and procurement of, and system specific military 

construction for, the acquisition program divided by the number of fully configured end 

items to be produced and PUC is the amount equal to the total of all funds programmed to 

be available for obligation for procurement for the program divided by the number of fully 

configured end items to be procured. 10 U.S.C. § 2432(a) (1) and (2). 
Page 7 GAO-05-182 Defense Acquisitions 

• a 6-month or greater delay in the current estimate of any schedule 

milestone since the current estimate of the previous report; or 

• a milestone B or C and associated acquisition program baseline 

approval within 90 days prior to the quarterly report as of that date. 

DOD could be reporting more complete information on unit cost 

performance to Congress for its authorization and appropriations 

deliberations. A new baseline serves an important management control 

purpose when program goals are no longer achievable, because it presents 

an important perspective on the program’s current status and acquisition 

strategy. However, by comparing the latest unit cost estimate with the 

most recent approved baseline, DOD provides an incomplete perspective 

on a program’s performance because a rebaseline shortens the period of 

performance reported and resets the measurement of cost growth to zero. 

In providing information to Congress, DOD does not measure and report 

two meaningful perspectives—cumulative unit cost growth in constant 

dollars and the change in unit cost between one budget request and the 

next. In its SARs, DOD also does not present how unit cost growth is 

adjusted for Nunn-McCurdy determinations when a rebaselining reduces 

the number of units to be procured or increases system capabilities. 

Current reporting policies and practices could be improved to provide 

more useful information to decision makers and strengthen accountability 

for performance. 

DOD does not measure and report cumulative unit cost growth in constant 

dollars. Cumulative cost data provides an important perspective because 

it reflects changes and performance over the life of a program—-from the 

first full estimate, when the business case was first made to Congress, to 

the present. Measuring change in constant dollars removes the effects of 

inflation, which are beyond the control of individual programs, and is used 

to measure real program cost growth. 

DOD reports to Congress on the unit cost growth of programs in two 

different sections of the SAR. One section reports the current estimate 

against the latest approved baseline in both then-year and constant dollars. 

However, because of rebaselining, the latest approved baseline may be in 

place for only a short period of time and the measurement of unit cost 

growth is reset to zero. The other section reports the cumulative 

historical change only in then-year dollars, which includes the effects of 

inflation. 

Information for 

Congress on Unit Cost 

Performance Could 

Be More Complete 

Cumulative Unit Cost 

Changes Are Not Measured 

and Reported in Constant 

Dollars 
Page 8 GAO-05-182 Defense Acquisitions 

Rebaselining can occur during each phase of acquisition, sometimes 

frequently on individual programs. For example, in 2003, DOD reported on 

81 programs; of this number, 49 or (60 percent) had multiple rebaselinings 

over the life of the program. Table 1 provides examples of the highest 

number of rebaselinings in individual DOD acquisition programs. 

Table 1: Examples of the Highest Number of Rebaselinings 

Program Year of program start Date of latest rebaseline Number of rebaselines

F/A-22 1992 04/01/2004 14

DDG 51 1988 08/31/2002 11

SM-2 Block IV 1993 08/04/1999 11

SSN-21 1988 04/19/2000 10

Source: GAO analysis of DOD data. 

As illustrated in table 2, DOD reports unit cost growth in constant dollars 

only for the most recent period of performance. It does not present a full 

history of a program’s unit cost growth in a single document. For example, 

DOD reported in the December 2003 SAR that the Marine Corps’ H-1 

helicopter upgrade program’s unit cost has shrunk by 1 percent in the last 

20 months; however, DOD did not report that the program’s unit cost had, 

in constant dollars, doubled in the last 87 months. 

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

Reported to Congress 

change based on latest APB 

Not reported to Congress 

change based on original APB 

Program 

Percentage of 

APUC change

Time elapsed 

(in months)

Percentage of 

APUC change 

Time elapsed 

(in months)

AMRAAM (3.71) 87 125.52 254

AAWS-M (Javelin) 4.14 34 207.87 174

FMTV (4.67) 7 154.52 177

USMC H-1 Upgrades (.98) 20 101.52 87

V-22 Vertical Lift Aircraft 6.00 20 132.46 212

F/A-22 (.33) 4 72.40 143

Source: GAO analysis of 2003 SAR data. 

DOD reports in another section of the SAR the cumulative unit cost 

change, but only in then-year dollars which includes the effects of 

inflation. The statute that requires submission of SARs to Congress calls 

for reporting the history of the Program Acquisition Unit Cost and the 
Page 9 GAO-05-182 Defense Acquisitions 

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

SAR to the end of the quarter for which the current SAR is submitted. 12

Determining the change in constant dollars, which removes the effects of 

inflation, provides more meaningful data. For example, as shown in table 

3, the unit cost growth reported to Congress for the F/A-18E/F was almost 

zero percent because it was presented in then-year dollars. DOD did not 

report that the costs increased by more than one-third, once the effects of 

inflation are removed. 

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

Dollars in millions 

Reported to Congress 

PAUC in then-year dollars 

Not reported to Congress

PAUC in 2005 dollars

Development estimate $94.58 $70.20

Current estimate 94.90 96.01

Percentage change 0.003 36.78

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

DOD does not measure and report the changes in unit cost between the 

latest budget request and the prior budget. Between the 2004 and 2005 

budget requests, DOD rebaselined 7 of the 81 major defense acquisition 

programs. When DOD rebaselined these programs, it reset the cost growth 

to zero. For example, the Stryker armored vehicle program reported a 

little over 1 percent unit cost growth in the 2 months since it rebaselined, 

but DOD did not report the meaningful perspective that the program 

experienced a 20 percent growth between annual budget requests. (Table 

4 illustrates the differences in program acquisition unit cost when annual 

changes are not reported.) 

 12 10 U.S.C. § 2432(c) (1). 

Year-to-Year Unit Cost 

Changes Are Not Measured 

and Reported 
Page 10 GAO-05-182 Defense Acquisitions 

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

Reported to Congress 

Current estimate compared to 

latest APB 

Not Reported to Congress 

Current estimate compared to 

prior year estimate 

Program 

Percentage of 

PAUC Change

Time elapsed 

(in months)

Percentage of 

PAUC change 

Time elapsed 

(in months)

Advanced Extremely High 

Frequency Satellites 2.78 1.5 49.88 12

FA-22 Raptor 0.0 3 27.39 12

Stryker 1.34 2 20.97 12

Force XXI Battle Command 0.0 2.5 72.79 12

Source: GAO analysis of 2002 and 2003 SAR data. 

Congress established unit cost as a key measure of buying power—the 

average cost to buy each unit. Congress also established the NunnMcCurdy cost increase thresholds of 15 percent and 25 percent for unit 

cost growth that require detailed reporting. As defined by law, unit costs 

are determined by dividing total cost by total quantities.13 If quantities 

decrease but costs stay the same or do not decrease proportionately, unit 

costs would necessarily increase. 

For determining Nunn-McCurdy breaches, DOD policy14 allows the 

exclusion of the unit cost increases associated with reductions in quantity 

or increases in capabilities on individual programs. DOD refers to these 

actions as programmatic adjustments, which require the approval of a new 

acquisition program baseline. DOD believes that these adjustments clarify 

legitimate cost growth and applies its exclusion policy to determine all 

Nunn-McCurdy breaches. 

By making these adjustments, DOD reduced the number and the 

magnitude of unit cost increases reported to Congress that would have 

otherwise exceeded the Nunn-McCurdy thresholds. The effects of these 

adjustments are generally not visible in the reports to Congress. As a 

result, Congress may not be getting the information it sought on program 

buying power in requiring unit cost reporting. 

 13 This reflects the definitions of program acquisition and procurement unit cost in 10 

U.S.C. § 2432(a). 

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

In Some Cases, DOD 

Reduces the Magnitude of 

Unit Cost Growth for 

Nunn-McCurdy 

Determinations 
Page 11 GAO-05-182 Defense Acquisitions 

For example, as seen in table 5, in December 2002, the Comanche 

Helicopter program experienced a PAUC growth of about 62 percent over 

27 months. However, after excluding the unit cost increases associated 

with a program restructure and a reduction in quantity of 561 aircraft,15

DOD reported a Nunn-McCurdy breach of 18 percent, less than the 25 

percent threshold that would have triggered a certification. DOD 

explained that the 18 percent cost growth was driven by weight growth, 

functionality changes, overhead rates, and estimating differences. The 

quantity reduction accounted for the other 44 percent of the cost growth. 

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

Dollars in millions 

Program acquisition unit cost Baseline Current estimate Percentage change

Total cost $37,936.1 $32,903.5 

Quantity 1,213 650 

Unit cost $31.275 $50.621 61.86

Source: GAO analysis of the December 2002 SAR. 

DOD would have reported or would have had to certify many more NunnMcCurdy breaches if not for the adjustments made to unit cost growth to 

account for reduced quantities or increased capabilities. The number of 

programs that would have had Nunn-McCurdy breaches reported to 

Congress between fiscal years 2001 and 2003 would have increased by 

about 50 percent—from 17 to 25 programs. The number of programs that 

reported a breach of the 25 percent threshold, which requires a formal 

certification by the Secretary of Defense to Congress, would have 

increased by 90 percent, going from 10 to 19 programs during the same 

period. Three of those programs—the Joint Strike Fighter, Comanche, and 

the MH-60R—reported breaching the 15 percent level. These three 

programs notified Congress of an APUC breach and therefore also 

reported the PAUC changes. Other than those three programs, the 

adjustments made to unit costs in table 6 were not disclosed in the 

relevant SAR. For example, the Bradley Upgrade program experienced a 

PAUC growth of 16 percent, but reported to Congress a 0.4 percent PAUC 

reduction. (Table 6 below shows the full unit cost growth and the 

adjusted unit cost growth used to determine breaches of Nunn-McCurdy 

thresholds.) 

 15 DOD excluded two prototype helicopters from the total quantity. 
Page 12 GAO-05-182 Defense Acquisitions 

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

Program Year 

Full PAUC growth

 (not reported to Congress ) 

PAUC Nunn-McCurdy Breach 

(reported to Congress)

PAUC growth

 (reported to Congress)

Joint Strike Fighter 2003 26.22 19.4 Both

FBCB2 2003 73.2 No 0

Stryker 2003 25.2 No 1.34

Comanche 2002 61.86 23 Both 

AEHF 2002 52.4 No -2.78 

Bradley upgrade 2002 16.1 No -.04 

F/A-22 2002 15.7 No 0

NAS 2002 37.4 No -.43 

B-1 CMUP 2001 42.04 No 6.41 

MH-60R Helicopter 2001 27.97 19 Both 

Global Hawk 2001 69.7 No 0

Source: GAO analysis of DOD data. 

DOD could be more timely in reporting to Congress that it has rebaselined 

individual programs. Although DOD’s time lines for reporting program 

acquisition breach data to Congress are consistent with statute, in most 

instances the establishment of a new baseline is not reported to Congress 

until months after the rebaseline has occurred. A key factor here is DOD is 

not required by statute or its own policies to report a program’s rebaseline 

to Congress. 

DOD typically reports the latest program rebaseline information in its 

December SAR, which is actually submitted to Congress the following 

April. Sometimes data can arrive for congressional consideration as much 

as 12 months after a program has rebaselined. Between the April 2003 and 

the April 2004 SARs to Congress, DOD rebaselined 9 programs and on 

average these rebaselines were not reported for 6 months. Between 1996 

and 2003 about two-thirds of the rebaselinings occurred between April and 

December. A new baseline approved after early April may not be reported 

to Congress before the enactment of authorization and appropriations 

legislation. 

For example, the DD(X) Destroyer program established a new baseline on 

April 23, 2002, but did not report this new baseline to Congress in a SAR 

until April 2003. As result, between the April 2002 and the passage of the 

fiscal year 2003 defense budget, the SAR provided to Congress did not 

Reporting of 

Rebaselinings Could 

Be More Timely and 

Unclassified Data Is 

Unnecessarily 

Restricted 
Page 13 GAO-05-182 Defense Acquisitions 

reflect the approved baseline for the DD(X) program. (Table 7 shows 

instances of the time lag in reporting rebaselines to Congress.) 

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

Program 

Date new baseline 

approved

Date rebaseline available to 

Congress in the SAR 

Lag time between rebaselining 

and reporting (in months)

Bradley Fighting Vehicle system 

upgrade 08/04/1997 April 1998 8

CH-47 Cargo Helicopter 07/26/2002 April 2003 9

LPD-17 Amphibious Transport 

Dock Ship 06/04/2002 April 2003 10

Family of medium tactical 

vehicles 05/26/1999 April 2000 11

Minuteman III Guidance 

Replacement Program 05/12/1997 April 1998 11

AV 8B remanufacture 04/10/1998 April 1999 12

DD(X) Destroyer 04/23/2002 April 2003 12

Strategic sealift 04/10/1998 April 1999 12

National Polar-Orbiting 

Operational Environmental 

Satellite System 04/19/1999 April 2000 12

National airspace system 04/22/1998 April 1999 12

Source: GAO analysis of DOD data. 

In addition, the accessibility of unclassified SAR data is unnecessarily 

restricted. DOD classified about 50 percent of the SARs it submitted to 

Congress in 2003, involving a total acquisition investment of $454 billion. 

However, only a small amount of data contained in each classified SAR is 

actually classified. The classified data is generally only one of the eighteen 

sections in a report—performance characteristics. Performance 

characteristics include such items as speed, range, and reliability. Because 

these SARs are classified, special handling procedures must be used by 

those congressional staff with the appropriate clearances even to access 

the unclassified cost and schedule data. This practice also completely 

blocks access for those staff without clearances to the unclassified cost 

and schedule data. As a result, congressional oversight of DOD’s 

adherence to established cost and schedule baselines is unnecessarily 

constrained. 
Page 14 GAO-05-182 Defense Acquisitions 

Congress faces hard choices in trying to balance competing demands for 

funds for major defense acquisition programs and for ongoing defense 

operations as well as for increasing levels of funding needed for other 

federal programs. A number of opportunities exist for DOD to give 

Congress more complete information on the performance of major 

defense acquisition programs for its oversight and decision-making 

responsibilities. Although DOD has provided unit cost data required by 

law, DOD would better capture the true nature of program performance by 

also measuring and reporting unit cost changes in constant dollars using 

cumulative and year-to-year perspectives. Basic data to measure and 

report such changes is already collected. To provide these additional 

perspectives, DOD would have to make the necessary comparisons and 

present them in the SARs.16 

Because of DOD’s policy to adjust unit cost growth when determining 

Nunn-McCurdy breaches by excluding the costs associated with 

reductions in quantities or increases in capabilities, Congress is not 

receiving information on the full extent of unit cost growth for these 

programs. Therefore, DOD should fully disclose the nature and extent of 

these adjustments. Congress may also wish to determine the 

appropriateness of these adjustments. 

Other changes would result in more timely and accessible reporting of unit 

cost data. One would be to inform Congress when a rebaselining action 

occurs, without issuing a new SAR and the other would be to separate the 

reporting of classified and unclassified information. 

To provide Congress with more complete, timely, and accessible 

information, we recommend that the Secretary of Defense implement the 

following four recommendations in the department’s reporting of data on 

major defense acquisition program baselines (APB) and performance 

• measure and report a full history of unit cost performance in constant 

dollars by comparing the latest cost and quantity estimates with: 

 16 Whenever the Secretary of Defense proposes to make changes in the content of the SAR, 

the Secretary is required by 10 U.S.C. § 2343(c) (2) to first notify the Senate and House 

Armed Services Committees. The changes may be considered approved by the Secretary 

and incorporated into the report only after the end of the 60 day period following the 

notification. 

Conclusions 

Recommendations for 

Executive Action 
Page 15 GAO-05-182 Defense Acquisitions 

• the first full estimate (typically the original acquisition program 

baseline established at Milestone B); 

• the current approved program baseline or, if the program 

rebaselines, the prior approved program baseline; and 

• the estimate established with the previous year’s budget request. 

• fully disclose to Congress the nature and extent of programmatic 

adjustments affecting Nunn-McCurdy threshold determinations, 

pending any congressional direction on this issue; 

• notify Congress when rebaselining actions are approved; and 

• separately report classified and unclassified SAR information. 

DOD's policy of excluding the effects of quantity reductions or capability 

increases in determining unit cost breaches of Nunn-McCurdy thresholds 

may not provide Congress the information it sought on program buying 

power in requiring unit cost reporting. Therefore, Congress may wish to 

consider whether DOD’s use of these programmatic adjustments is 

appropriate. 

In written comments on a draft of this report, DOD concurred with our 

recommendations. DOD also provided us with technical comments, which 

we have incorporated as appropriate. DOD expressed concern that the 

report could be misinterpreted to imply that DOD is not fully complying 

with statutory reporting requirements. As a result, with the exception of 

the issue of programmatic adjustments, we have clarified the language of 

the report to focus on the benefits to Congress of providing more 

complete information, beyond what the law currently requires. In the case 

of the programmatic adjustments, we believe that Congress may wish to 

determine whether DOD is providing it with the information it sought on 

buying power when it required unit cost reports. Their written comments 

to our recommendations appear in appendix II. 

On our first recommendation, DOD stated that a unit cost comparison in 

constant dollars from the current estimate back to multiple reference 

points (i.e., Milestone B, approved APB, and previous year’s President 

budget) would be more useful than what is currently being reported to 

Congress. DOD agreed to make these comparisons and also stated that it 

will inform the Congress of this change in the SAR content. 

Matters for 

Congressional 

Consideration 

Agency Comments 

and Our Evaluation 
Page 16 GAO-05-182 Defense Acquisitions 

On our second recommendation, DOD acknowledged that it has been 

excluding programmatic changes from Nunn-McCurdy unit cost breach 

determinations since February 1995, just after the Federal Acquisition 

Streamlining Act established the APB as the Nunn-McCurdy unit cost 

baseline. DOD agreed with GAO that the programmatic impacts to unit 

cost are not entirely clear in the SAR as currently reported and agreed to 

provide full details of programmatic adjustments in future reports to the 

Congress. DOD stated that it will inform the Congress of this change in 

the SAR content. 

On our third recommendation, DOD stated that notification of revised 

APBs could be accomplished if Congress so requests. While we are not 

advocating that a SAR be generated to notify the Congress when a major 

defense acquisition program is rebaselined, we remain convinced that 

DOD should initiate notification via an appropriate medium to the 

Congress whenever these programs are rebaselined. 

We are sending copies of this report to the Secretary of Defense and other 

interested parties. We will also provide copies to others on request. In 

addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

Should you or your staff have any questions on matters discussed in this 

report, please contact me on (202) 512-4841 or David Best, Assistant 

Director, at (202) 512-8078. Principal contributors to this report were Leon 

S. Gill, Danny Owens, Adam Vodraska, Robert Swierczek, Wendy Smythe, 

Tana Davis, and Judy Lasley. 

Robert E. Levin 

Director, Acquisition and Sourcing Management 
Appendix I: Scope and Methodology 

Page 17 GAO-05-182 Defense Acquisitions 

To evaluate to what extent DOD’s use of rebaselining affected the 

adequacy of data provided to Congress on the performance of major 

defense acquisition programs, we relied on the Federal Internal Control 

Standards to assess the comprehensiveness, timeliness, accessibility, and 

appropriateness of the contents of data provide by DOD to Congress. Due 

to the classified nature of most defense system’s performance parameters, 

our analysis of rebaselining did not include the baseline system’s 

operational performance parameters. We reviewed pertinent statutes, such 

as 10 U.S.C. § 2432 (SAF), § 2433 (Unit Cost Reports), and § 2435 (Baseline 

Description) and DOD acquisition system guidance, both the current 

version and proposed revisions. We analyzed more than 650 SARs, both 

quarterly and annual reports covering an 8 year period from 1996 to 2003, 

to determine which program had growth that exceeded DOD’s internal 10-

percent or the Nunn-McCurdy 15- and 25-percent thresholds. We arrayed 

the data extracted from these reports to show all program breaches and 

rebaselines by service, programs, breach types, and year. To assess the 

reliability of the data contained in the SARs, we used the standardized 

GAO data reliability interview template to interview cognizant DOD 

officials from the office of the Under Secretary of Defense for Acquisition, 

Technology, and Logistics (Acquisition Resources and Analysis). After 

reviewing DOD’s management controls in place for assessing data 

reliability, we concluded that management controls were adequate and the 

data was sufficiently reliable for our engagement purposes. Further, we 

also interviewed cognizant DOD officials in Washington, D.C., from the 

offices of the Under Secretary of Defense for Acquisition, Technology, and 

Logistics (Acquisition Resources and Analysis); Program Analysis and 

Evaluation; Cost Analysis Improvement Group (Weapons System Cost 

Analysis Division); and Office of General Counsel. We conducted our 

review between February 2004 and January 2005 in accordance with 

generally accepted government auditing standards. 

Appendix I: Scope and Methodology 
Appendix II: Comments from the Department 

of Defense 

Page 18 GAO-05-182 Defense Acquisitions 

Appendix II: Comments from the Department 

of Defense 

Note: Page numbers in 

the draft report may differ 

from those in this report. 
Appendix II: Comments from the Department 

of Defense 

Page 19 GAO-05-182 Defense Acquisitions 
Appendix II: Comments from the Department 

of Defense 

Page 20 GAO-05-182 Defense Acquisitions 
Appendix II: Comments from the Department 

of Defense 

Page 21 GAO-05-182 Defense Acquisitions (120323) 
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