Testimony 

Before the Subcommittee on Tactical Air 

and Land Forces, Committee on Armed 

Services, House of Representatives

United States Government Accountability Office

GAO 

For Release on Delivery 

Expected at 2:00 p.m. EDT 

Tuesday, April 4, 2006 DEFENSE ACQUISITIONS

Improved Business Case 

Key for Future Combat 

System’s Success 

Statement of Paul L. Francis, Director, 

Acquisition and Sourcing Management 

GAO-06-564T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-06-564T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Paul Francis at 

(202) 512-2811 or francisp@gao.gov. 

Highlights of GAO-06-564T, a testimony 

before the Subcommittee on Tactical Air 

and Land Forces, Committee on Armed 

Services, House of Representatives 

April 4, 2006

DEFENSE ACQUISITIONS 

Improved Business Case Key for Future 

Combat System’s Success 

There are a number of compelling aspects of the FCS program, and it is hard 

to argue with the program’s goals. However, the elements of a sound 

business case for such an acquisition program--firm requirements, mature 

technologies, a knowledge-based acquisition strategy, a realistic cost 

estimate, and sufficient funding—are not yet present. FCS began product 

development prematurely in 2003. Since then, the Army has made several 

changes to improve its approach for acquiring FCS. Yet today, the program 

remains a long way from having the level of knowledge it should have had 

before starting product development. FCS has all the markers for risks that 

would be difficult to accept for any single system, much less a complex, 

multiprogram effort. These challenges are even more daunting in the case of 

FCS not only because there are so many of them but because FCS represents 

a new concept of operations that is predicated on technological 

breakthroughs. Thus, technical problems, which accompany immaturity, not 

only pose traditional risks to cost, schedule, and performance; they pose 

risks to the new fighting concepts envisioned by the Army. 

Last month, we made recommendations to the Secretary of Defense to take 

several actions, prior to DOD’s long-term commitment to the program, to 

improve the FCS business case and establish knowledge-based measures to 

guide oversight of FCS progress. These recommendations detailed specific 

steps DOD should take leading up to a major milestone review of the 

program in 2008 when the program is expected to have achieved the level of 

knowledge it should have had in 2003. We believe it is at this point the 

program should be reviewed as to whether it has established enough of a 

solid business case to continue. While DOD concurred with the intent of our 

recommendations, it did not agree to limit its commitment to the FCS 

program or to do much beyond what it had already planned to do. This 

concerns us. As a result, we have also raised to Congress several matters for 

consideration to ensure that FCS has a sound business case before future 

funding commitments are made. We believe the actions we have 

recommended to DOD and the matters for consideration we have presented 

to Congress are necessary to improve the prospects for FCS success and to 

protect the government’s ability to change course if the program does not 

progress as the Army plans. 

The Future Combat System (FCS) 

is a networked family of weapons 

and other systems in the forefront 

of efforts by the Army to become a 

lighter, more agile, and more 

capable combat force. When 

considering complementary 

programs, projected investment 

costs for FCS are estimated to be 

on the order of $200 billion. 

FCS’s cost is of concern given that 

developing and producing new 

weapon systems is among the 

largest investments the government 

makes, and FCS adds significantly 

to that total. Over the last 5 years, 

the Department of Defense (DOD) 

doubled its planned investments in 

such systems from $700 billion in 

2001 to $1.4 trillion in 2006. At the 

same time, research and 

development costs on new 

weapons continue to grow on the 

order of 30 to 40 percent. 

FCS will be competing for 

significant funds at a time when 

federal fiscal imbalances are 

exerting great pressures on 

discretionary spending. In the 

absence of more money being 

available, FCS and other programs 

must be executable within 

projected resources. 

Today, I would like to discuss 

(1) the business case needed for 

FCS to be successful and (2) our 

recent recommendations to DOD 

and matters for congressional 

consideration regarding the FCS 

program. 
Page 1 GAO-06-564T 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the Department of the Army’s 

Future Combat System (FCS), a networked family of weapons and other 

systems. FCS is in the forefront of efforts to help the Army transform itself 

into a lighter, more agile, and more capable combat force by using a new 

concept of operations, new technologies, and a new information network 

linking whole brigades together. This is a tremendous undertaking that 

will involve a total investment cost on the order of $200 billion. 

The context within which the FCS investment is being made is important. 

Fiscal imbalances faced by the federal government will continue to 

constrain discretionary spending. One of the single largest investments the 

government makes is the development and production of new weapon 

systems. Over the last 5 years, the Department of Defense (DOD) has 

doubled its planned investments in new weapon systems from about $700 

billion in 2001 to nearly $1.4 trillion in 2006. At the same time, research 

and development cost growth on new weapons maintains its historical 

level of about 30 to 40 percent. This is the lens that must be used to look at 

major new investments, such as FCS, because more money may not be an 

option for the future. Rather, the key to getting better outcomes is to make 

individual programs more executable. 

My statement today is based on our recently issued report about the need 

for an improved business case for the FCS. This report responds to the 

National Defense Authorization Act for Fiscal Year 2006, which requires 

GAO to report annually on the product development phase of the FCS’s 

acquisition.1

 Recently, we testified before the Senate Armed Services 

Committee about the FCS’s business case and related business 

arrangements.2

Today, I would like to discuss (1) the scope of the business case that we 

feel is necessary for the FCS to be successful and (2) our recent 

recommendations to DOD and matters for congressional consideration 

regarding the FCS program. 

 1

 GAO, Defense Acquisitions: Improved Business Case Is Needed for Future Combat 

System’s Successful Outcome. GAO-06-367. (Washington, D.C.: Mar. 14, 2006). 

2

 GAO, Defense Acquisitions: Business Case and Business Arrangements Key for Future 

Combat System’s Success. GAO-06-478T. (Washington, D.C.: Mar. 1, 2006). 
Page 2 GAO-06-564T 

The critical role played by U.S. ground combat forces is underscored today 

in Operation Iraqi Freedom. That the Army should ensure its forces are 

well equipped with the capabilities they will need in the coming years is 

unquestioned. Moreover, the top-level goals the Army has set for its future 

force seem inarguable: to be as lethal and survivable as the current force, 

but significantly more sustainable and mobile. However, the Army’s 

approach to meeting these needs—embodied in the FCS and its 

complementary systems—does raise questions. 

On the one hand, the FCS is the result of the Army leadership’s taking a 

hard look at how it wants its forces to fight in the future. Army leadership 

has had the courage to break with tradition on FCS; it would have likely 

been much easier to win support for successor vehicles to the Abrams and 

Bradley. On the other hand, FCS does not present a good business case for 

an acquisition program. It is necessary that a major new investment like 

FCS have a compelling, well thought-out concept, but this alone is not 

sufficient. FCS began product development prematurely in 2003, and today 

is a long way from having the level of knowledge it should have had before 

committing the high level of resources associated with a new product 

development effort. The elements of a sound business case—firm 

requirements, mature technologies, a knowledge-based acquisition 

strategy, a realistic cost estimate, and sufficient funding—are not yet 

present. FCS has all the markers for risks that would be difficult to accept 

for any single system. They are even more daunting in the case of FCS, not 

only because of their multiplicity, but because FCS represents a new 

concept of operations predicated on technological breakthroughs. Thus, 

technical problems, which accompany immaturity, not only pose 

traditional risks to cost, schedule, and performance, but also pose risks to 

the new fighting concepts envisioned by the Army. 

A full commitment to the Army’s strategy for acquiring FCS is not yet 

warranted because the Army has not demonstrated sufficient knowledge 

by providing the confidence it can deliver a fully capable FCS within 

projected costs and time frames. As DOD proceeds with its decisions, it 

must preserve its ability to change course on acquiring FCS capabilities to 

guard against a situation in which FCS will have to be acquired at any cost. 

It must also be able to hold the Army accountable for delivering FCS 

within budgeted resources. Last month, we made recommendations to the 

Secretary of Defense to take several actions, prior to DOD’s long-term 

commitment to the program, to improve the FCS business case and 

establish knowledge-based measures to guide oversight of FCS progress. 

These recommendations detailed specific steps DOD should take leading 

up to a major milestone review of the program in 2008, when the program 

Summary 
Page 3 GAO-06-564T 

is expected to have achieved the level of knowledge it should have had in 

2003. We believe it is at this point the program should be reviewed as to 

whether it has established enough of a solid business case to continue. 

While DOD concurred with the intent of our recommendations, it did not 

agree to limit its commitment to the FCS program or to do much beyond 

what it had already planned to do. This concerns us. As a result, we have 

also raised to Congress several matters for consideration to ensure that 

FCS has a sound business case before future funding commitments are 

made. We believe the actions we have recommended to DOD and the 

matters for consideration we have presented are necessary to improve the 

prospects for FCS success and to protect the government’s ability to 

change course if the program does not progress as the Army plans. 

The FCS concept is part of a pervasive change to what the Army refers to 

as the Future Force. The Army is reorganizing its current forces into 

modular brigade combat teams, meaning troops can be deployed on 

different rotational cycles as a single team or as a cluster of teams. The 

Future Force is designed to transform the Army into a more rapidly 

deployable and responsive force and to enable the Army to move away 

from the large division-centric structure of the past. Each brigade combat 

team is expected to be highly survivable and the most lethal brigade-sized 

unit the Army has ever fielded. The Army expects FCS-equipped brigade 

combat teams to provide significant warfighting capabilities to DOD’s 

overall joint military operations. The Army is implementing its 

transformation plans at a time when current U.S. ground forces are playing 

a critical role in the ongoing conflicts in Iraq and Afghanistan. 

The FCS family of weapons includes 18 manned and unmanned ground 

vehicles, air vehicles, sensors, and munitions linked by an information 

network. These vehicles, weapons, and equipment will constitute the 

majority of the equipment needed for a brigade combat team. The Army 

plans to buy 15 brigades’ worth of FCS equipment by 2025. See figure 1 for 

the various elements of the FCS program. 

Background 
Page 4 GAO-06-564T 

Figure 1: FCS’s Core Systems 

If successful, the FCS system-of-systems concept will leverage individual 

capabilities of weapons and platforms and will facilitate interoperability 

and open system designs. This would be a significant improvement over 

the traditional approach of building superior individual weapons that must 

be retrofitted and netted together after the fact. This transformation, in 

terms of both operations and equipment, is under way with the full 

cooperation of the Army warfighter community. In fact, the development 

and acquisition of FCS is being accomplished using a uniquely 

collaborative relationship among the Army’s developers, the participating 

contractors, and the warfighter community. 

Source: U.S. Army.
Page 5 GAO-06-564T 

As a key element of its efforts to transform itself, the Army has recognized 

FCS from its outset as the greatest technology and integration challenge it 

has ever undertaken. In May 2003, DOD approved the FCS program to 

begin the system development and demonstration phase, a milestone that 

ideally marks the completion of technology development and the start of 

product development. However, FCS’s entry into this phase was 

premature given the program had failed to satisfy basic tenets of DOD 

acquisition policy. We have reported that, as FCS started product 

development, it did not have mature technologies or adequately defined 

requirements. 

Responding to direction from the Army Chief of Staff, the Army 

announced in July 2004 its plans to restructure the FCS program. The 

Army added 4 years to develop and mature the manned ground vehicles, 

added more demonstrations and experiments, and established an 

evaluation unit to demonstrate FCS capabilities. The restructuring 

reintroduced 4 systems that previously had been left unfunded, raising the 

total number of FCS-related systems to 18. The restructure also included 

plans to spin off mature FCS capabilities as they become available to 

current force units. With the restructuring, the FCS program now plans to 

achieve initial operational capability in fiscal year 2015 and full 

operational capability in fiscal year 2017. FCS low-rate production is 

expected to start in fiscal year 2012, and full-rate production in fiscal year 

2016. The Army intends to continue FCS procurement through fiscal year 

2025, eventually equipping 15 brigade combat teams. 

The restructuring was not the only major modification to the FCS 

program. Because of congressional concerns that the Army’s contracting 

approach incorporated insufficient safeguards to protect the government’s 

interests, the Army is preparing a new contract that is to be completed and 

finalized in late March 2006 and is based on the Federal Acquisition 

Regulation, which governs acquisitions within the federal government. The 

new contract will incorporate standard Federal Acquisition Regulation 

clauses such as those relating to procurement integrity, Truth in 

Negotiations, and Cost Accounting Standards. Previously, the lead systems 

integrator had been performing FCS work for the Army under a 

contractual instrument called an “other transaction agreement” that was 

not subject to the Federal Acquisition Regulation. The other transaction 

agreement gave the Army considerable flexibility to negotiate the terms 

and conditions for contractors involved in FCS development. The Army’s 

purpose for using such an agreement was to encourage innovation and to 

use its wide latitude in tailoring business, organizational, and technical 

relationships to achieve the program goals. In April 2005, the Army 

FCS Restructures the 

Program and Changes 

Contracting Approach 
Page 6 GAO-06-564T 

decided to incorporate into its agreement the procurement integrity, Truth 

in Negotiations, and Cost Accounting Standards clauses from the 

regulation. 

After Congress raised questions about the Army using an other transaction 

agreement for the development of a program as large and risky as FCS and 

about the Army’s choice not to include standard Federal Acquisition 

Regulation clauses in the agreement, the Secretary of the Army directed 

that the other transaction agreement be converted to a Federal Acquisition 

Regulation-based contract. All of the work performed under the product 

development phase as of September 2005 will be accounted for under the 

prior other transaction agreement, and all work after September 2005 will 

be performed under the new contract. The Army expects the content of 

the program—its statement of work—will remain largely the same, and it 

does not expect the cost, schedule, and performance of the overall 

development effort to change materially. 

We have frequently reported on the importance of using a solid, 

executable business case before committing resources to a new product 

development. In its simplest form, this is evidence that (1) the warfighter’s 

needs are valid and can best be met with the chosen concept, and (2) the 

chosen concept can be developed and produced within existing 

resources—that is, proven technologies, design knowledge, adequate 

funding, and adequate time to deliver the product when needed. 

At the heart of a business case is a knowledge-based approach to product 

development demonstrating high levels of knowledge before significant 

commitments are made. In essence, knowledge supplants risk over time. 

This building of knowledge can be described as three levels, or knowledge 

points, that should be attained over the course of a program: 

• First, at program start, the customer’s needs should match the 

developer’s available resources—mature technologies, time, and 

funding. An indication of this match is the demonstrated maturity of 

the technologies needed to meet customer needs. 

• Second, about midway through development, the product’s design 

should be stable and demonstrate it is capable of meeting performance 

requirements. The critical design review takes place at that point of 

time because it generally signifies when the program is ready to start 

building production-representative prototypes. 

Elements of a Business 

Case 
Page 7 GAO-06-564T 

• Third, by the time of the production decision, the product must be 

shown to be producible within cost, schedule, and quality targets and 

have demonstrated its reliability, and the design must demonstrate that 

it performs as needed through realistic system-level testing. 

The three knowledge points are related in that a delay in attaining one 

delays the points that follow. Thus, if the technologies needed to meet 

requirements are not mature, then design and production maturity will be 

delayed. 

To develop the information on the Future Combat System program’s 

progress toward meeting established goals, the contribution of critical 

technologies and complementary systems, and the estimates of cost and 

affordability, we interviewed officials of the Office of the Under Secretary 

of Defense (Acquisition, Technology, and Logistics); the Army G-8; the 

Office of the Under Secretary of Defense (Comptroller); the Secretary of 

Defense’s Cost Analysis Improvement Group; the Director of Operational 

Test and Evaluation; the Assistant Secretary of the Army (Acquisition, 

Logistics, and Technology); the Army’s Training and Doctrine Command; 

Surface Deployment and Distribution Command; the Program Manager for 

the Future Combat System (Brigade Combat Team); the Future Combat 

System Lead Systems Integrator; and other contractors. We reviewed, 

among other documents, the Future Combat System’s Operational 

Requirements Document, the Acquisition Strategy Report, the Baseline 

Cost Report, the Critical Technology Assessment and Technology Risk 

Mitigation Plans, and the Integrated Master Schedule. We attended or 

reviewed the results of the FCS System-of-Systems Functional Review, InProcess Reviews, Board of Directors Reviews, and multiple system 

demonstrations. In our assessment of the FCS, we used the knowledgebased acquisition practices drawn from our large body of past work as 

well as DOD’s acquisition policy and the experiences of other programs. 

We conducted the above in response to the National Defense 

Authorization Act of Fiscal Year 2006, which requires GAO to annually 

report on the product development phase of the FCS acquisition. We 

performed our review from June 2005 to March 2006 in accordance with 

generally accepted government auditing standards. 

Objectives, Scope, 

and Methodology 
Page 8 GAO-06-564T 

The FCS program started its product development phase with inadequate 

knowledge in several key areas. After almost 3 years and progress in key 

areas, the elements of a sound business case, namely firm requirements, 

mature technologies, a knowledge-based acquisition strategy, a realistic 

cost estimate, and sufficient funding, are not yet demonstrably present. 

Given that, an improved business case for the FCS program is essential to 

help ensure the program is successful in the long run. The importance of a 

business case is amplified by the fact that the program is developing 18 

systems and a network under a single program office and lead system 

integrator in the same amount of time it would take to develop a single 

system. 

The Army has made significant progress defining FCS’s system-of-systems 

requirements, particularly when taking into account the daunting number 

of them involved—nearly 11,500 at this level. Yet system-level 

requirements are not yet stabilized and will continue to change, 

postponing the needed match between requirements and resources. Now 

the Army and its contractors are working to complete the definition of 

system-level requirements, and the challenge is in determining if those 

requirements are technically feasible and affordable. Army officials say it 

is almost certain some FCS system-level requirements will have to be 

modified, reduced, or eliminated; the only uncertainty is by how much. We 

have previously reported unstable requirements can lead to cost, schedule, 

and performance shortfalls. Once the Army gains a better understanding of 

the technical feasibility and affordability of the system-level requirements, 

trade-offs between the developer and the warfighter will have to be made, 

and the ripple effect of such trade-offs on key program goals will have to 

be reassessed. Army officials have told us it will be 2008 before the 

program reaches the point that it should have reached before it started in 

May 2003 in terms of stable requirements. 

Improved Business 

Case Is Needed for 

the FCS’s Success 

While Progress Has Been 

Made, Requirements Still 

Remain Uncertain 
Page 9 GAO-06-564T 

Development of concrete program requirements depends in large part on 

stable, fully mature technologies. Yet, according to the latest independent 

assessment, the Army has not fully matured any of the technologies 

critical to FCS’s success.3

 Some of FCS’s critical technologies may not 

reach a high level of maturity until the final major phase of acquisition, the 

start of production. The Army considers a lower level of demonstration as 

acceptable maturity, but even against this standard, only about one-third 

of the technologies are mature. We have reported going forward into 

product development without demonstrating mature technologies 

increases the risk of cost growth and schedule delays throughout the life 

of the program. The Army is also facing challenges with several of the 

complementary programs considered essential for meeting FCS’s 

requirements. Some are experiencing technology difficulties, and some 

have not been fully funded. These difficulties underscore the gap between 

requirements and available resources that must be closed if the FCS 

business case is to be executable. 

Technology readiness levels (TRL) are measures pioneered by the 

National Aeronautics and Space Administration and adopted by DOD to 

determine whether technologies are sufficiently mature to be incorporated 

into a weapon system. Our prior work has found TRLs to be a valuable 

decision-making tool because they can presage the likely consequences of 

incorporating a technology at a given level of maturity into a product 

development. The maturity levels range from paper studies (level 1), to 

prototypes tested in a realistic environment (level 7), to an actual system 

proven in mission operations (level 9). Successful DOD programs have 

shown critical technologies should be mature to at least a TRL 7 before the 

start of product development. 

 3

 Office of the Deputy Assistant Secretary of the Army for Research and Technology, 

Technology Readiness Assessment Update, April 2005. 

FCS Success Hinges on 

Numerous 

Undemonstrated 

Technologies and 

Complementary Programs 
Page 10 GAO-06-564T 

Table 1: Number of FCS Critical Technologies Sorted by TRLs 

TRL 

Critical technology 

assessment as of April 2003 

Critical technology

 assessment as of April 2005

TRL 7 and higher 1 0

TRL 6 7 18

TRL 5 and lower 24 31

Total 32 49

Source: U.S. Army (data); GAO (analysis and presentation). 

Note: The April 2003 assessment was organized into 31 technology areas, one of which had two 

different TRL ratings for separate technologies. For the April 2005 assessment, the original 31 

technology areas were subdivided into 54 individual technologies. Five of the original technologies 

are no longer being tracked, leaving a total of 49. 

Table 1 shows that in the latest independent FCS technology assessment, 

none of the critical technologies are at TRL 7, and only 18 of the 49 

technologies currently rated have demonstrated TRL 6, defined as 

prototype demonstration in a relevant environment. None of the critical 

technologies may reach TRL 7 until the production decision in fiscal year 

2012, according to Army officials. Projected dates for FCS technologies to 

reach TRL 6 have slipped significantly since the start of the program. In 

the 2003 technology assessment, 87 percent of FCS’s critical technologies 

were projected to be mature to a TRL 6 by 2005. When the program was 

looked at again in April 2005, 31 percent of the technologies were 

expected to mature to a TRL 6 by 2005, and all technologies are not 

expected to be mature to that level until 2009. 

The knowledge deficits for requirements and technologies have created 

enormous challenges for devising an acquisition strategy that can 

demonstrate the maturity of design and production processes. Several 

efforts within the FCS program are facing significant problems that may 

eventually involve reductions in promised capabilities and may lead to 

cost overruns and schedule delays. Even if requirements setting and 

technology maturity proceed without incident, FCS design and production 

maturity will still not be demonstrated until after the production decision 

is made. Production is the most expensive phase in which to resolve 

design or other problems. 

The Army’s acquisition strategy for FCS does not reflect a knowledgebased approach. Figure 2 shows how the Army’s strategy for acquiring 

FCS involves concurrent development, design reviews occurring late, and 

FCS Acquisition Strategy 

Will Demonstrate Design 

Maturity after Production 

Begins 
Page 11 GAO-06-564T 

other issues out of alignment with the knowledge-based approach outlined 

in DOD policy. 

Figure 2: FCS Acquisition Compared with Commercial Best Practices’ Approach 

Ideally, the preliminary design review occurs at or near the start of 

product development. Review at this point can help reveal key technical 

and engineering challenges and can help determine if a mismatch exists 

between what the customer wants and what the product developer can 

deliver. An early preliminary design review is intended to help stabilize 

cost, schedule, and performance expectations. The critical design review 

ideally occurs midway into the product development phase. The critical 

design review should confirm the system design is stable enough to build 

production-representative prototypes for testing. 

Best practices approach

FCS approach

Development 

start

Production

start

Technology development Integration

KP 1

and 

PDR

KP 2

and 

CDR

PDR CDR

KP 3

Demonstration Production

FCS KP 1, KP 2 and KP 3 ?

Technology development

Production

2000 2002 2004 2006 2008 2010 2012 2014 2016

KP 1: (Knowledge Point 1): technologies and resources match requirements

KP 2: (Knowledge Point 2): design performs as expected

KP 3: (Knowledge Point 3): production can meet cost, schedule, and quality targets

PDR: Preliminary design review

CDR: Critical design review

Source: U.S. Army (data); GAO (analysis and presentation).

 Systems Development and Demonstration Production

 Systems Development and Demonstration
Page 12 GAO-06-564T 

The FCS acquisition schedule indicates several key issues: 

• The program did not have the basic knowledge needed for program 

start in 2003. While the preliminary design review normally occurs at or 

near the start of product development, the Army has scheduled it in 

fiscal year 2008, about 5 years after the start of product development. 

• Instead of the sequential development of knowledge, major elements of 

the program are being conducted concurrently. 

• The critical design review is scheduled in fiscal year 2010, just 2 years 

after the scheduled preliminary review and the planned start of detailed 

design. The timing of the design reviews is indicative of how late 

knowledge will be attained in the program, assuming all goes according 

to plan. 

• The critical design review is also scheduled just 2 years before the 

initial FCS low-rate production decision in fiscal year 2012, leaving 

little time for product demonstration and correction of any issues 

identified at that time. 

The FCS program is thus susceptible to late-cycle churn, which refers to 

the additional—and unanticipated—time, money, and effort that must be 

invested to overcome problems discovered late through testing. 

The total cost for the FCS program, now estimated at $160.7 billion (thenyear dollars), has climbed 76 percent from the Army’s first estimate. 

Because uncertainties remain regarding FCS’s requirements and the Army 

faces significant challenges in technology and design maturity, we believe 

the Army’s latest cost estimate still lacks a firm knowledge base. 

Furthermore, this latest estimate does not include complementary 

programs that are essential for FCS to perform as intended, or the 

necessary funding for spin-outs. The Army has taken some steps to help 

manage the growing cost of FCS, including establishing cost ceilings or 

targets for development and production. However, program officials told 

us that setting cost limits may result in accepting lower capabilities. As 

FCS’s higher costs are recognized, it remains unclear whether the Army 

will have the ability to fully fund the planned annual procurement costs for 

the FCS current program of record. FCS affordability depends on the 

accuracy of the cost estimate, the overall level of development and 

procurement funding available to the Army, and the level of competing 

demands. 

FCS’s Higher Costs May 

Result in Funding 

Challenge 
Page 13 GAO-06-564T 

At the start of product development, FCS program officials estimated that 

the program would require about $20 billion in then-year dollars for 

research, development, testing, and evaluation and about $72 billion to 

procure the FCS systems to equip 15 brigade combat teams. At that time, 

program officials could only derive the cost estimate on the basis of what 

they knew then—requirements were still undefined and technologies were 

immature. The total FCS program is now expected to cost $160.7 billion in 

then-year dollars, a 76 percent increase. Table 2 summarizes the growth of 

the FCS cost estimate. 

Table 2: Comparison of Original Cost Estimate and Current Cost Estimate for FCS 

Program 

(in billions of then-year dollars) 

Original 

estimate

Revised estimate 

(as of 1/2006) 

Percentage 

increase

Research, development, 

testing, and evaluation 

$19.6 $30.5 56% 

Procurement $71.8 $130.2 81%

Total $91.4 $160.7 76%

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

According to the Army, the current cost estimate is more realistic, better 

informed, and based on a more reasonable schedule. The estimate 

accounts for the restructure of the FCS program and its increased scope, 

the 4-year extension to the product development schedule, the 

reintroduction of four systems that had been previously deferred, and the 

addition of a spin-out concept whereby mature FCS capabilities would be 

provided, as they become available, to current Army forces. The estimate 

also reflects a rate of production reduced from an average of 2 brigade 

combat teams per year to an average of 1.5 brigades per year. Instead of 

completing all 15 brigades by 2020, the Army would complete production 

in 2025. This cost estimate has also benefited from progress made in 

defining system-of-systems requirements. 

Figure 3 compares the funding profiles for the original program and for the 

latest restructured program. 
Page 14 GAO-06-564T 

Figure 3: Comparison of Original Cost Estimate and Current Cost Estimate for FCS 

Program between Fiscal Years 2003 and 2026 

The current funding profile is lower than the original through fiscal year 

2013, but is substantially higher than the original after fiscal year 2013. It 

still calls for making substantial investments before key knowledge has 

been demonstrated. Stretching out FCS development by 4 years freed up 

about $9 billion in funding through fiscal year 2011 for allocation to other 

Army initiatives. Originally, FCS annual funding was not to exceed $10 

billion in any 1 year. Now, the cost estimate is expected to exceed $10 

billion in each of 9 years. While it is a more accurate reflection of program 

costs than the original estimate, the latest estimate is still based on a low 

level of knowledge about whether FCS will work as intended. The cost 

estimate has not been independently validated, as called for by DOD’s 

acquisition policy. The Cost Analysis Improvement Group will not release 

its updated independent estimate until spring 2006, after the planned 

Defense Acquisition Board review of the FCS program. 

The latest cost estimate does not include all the costs that will be needed 

to field FCS capabilities. For instance, 

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

202

2025

3

201

2015

2017

2019

2021

3

200

2005

2007

2009

2011

3

Dollars in millions

Source: U.S. Army (data); GAO (analysis and presentation).

Year

Original estimate

Current estimate
Page 15 GAO-06-564T 

• Costs for the 52 essential complementary programs are separate, and 

some of those costs could be substantial. For example, the costs of the 

Joint Tactical Radio System Clusters 1 and 5 programs were expected 

to be about $32.6 billion (then-year dollars).4

• Some complementary programs, such as the Mid-Range Munition and 

Javelin Block II, are currently not funded for their full development. 

These and other unfunded programs would have to compete for 

already tight funding. 

• Procurement of the spin-outs from the FCS program to current Army 

forces is not yet entirely funded. Procuring the FCS items expected to 

be spun out to current forces is expected to cost about $19 billion, and 

the needed installation kits may add $4 billion. Adding these items 

brings the total required FCS investment to the $200 billion range. 

Through fiscal year 2006, the Army will have budgeted over $8 billion for 

FCS development. Through fiscal year 2008, when the preliminary design 

review is held, the amount budgeted for FCS will total over $15 billion. By 

the time the critical design review is held in 2010, about $22 billion will 

have been budgeted. By the time of the production decision in 2012, about 

$27 billion will have been budgeted. 

The affordability of the FCS program depends on several key assumptions. 

First, the program must proceed without exceeding its currently projected 

costs. Second, the Army’s annual procurement budget—not including 

funds specifically allocated for the modularity initiative—is expected to 

grow from about $11 billion in fiscal year 2006 to at least $20 billion by 

fiscal year 2011. Even if this optimistic projection comes to pass, FCS 

annual procurement costs will dominate the Army procurement funding. If 

the Army budget remains at fiscal year 2011 levels, FCS procurement will 

represent about 60 to 70 percent of Army procurement from fiscal years 

2014 to 2022. With the remainder, the Army will have to address current 

force upgrades, including spin-outs from FCS, the procurement of FCS 

complementary programs, aviation procurement, trucks, ammunition, and 

other equipment. Further, FCS will have to compete for funding with other 

Army “big-ticket” items, such as missile defense systems and the future 

heavy lift helicopter. 

 4

 The ongoing operational assessment of the Joint Tactical Radio System functionality 

could result in a program restructure, which would have an impact on the program’s costs. 
Page 16 GAO-06-564T 

Figure 4 compares the projected FCS budget with the funds the Army 

projects for its total procurement budget. 

Figure 4: Comparison of FCS Budget with Total Army Procurement Budget 

The large annual procurement costs for FCS are expected to begin in fiscal 

year 2012, which is beyond the current Future Years Defense Plan period 

(fiscal years 2006-2011). This situation is typically called a funding bow 

wave. The term “bow wave” is used to describe a requirement for more 

funds just beyond the years covered in the current defense plan that are 

subject to funding constraints. As it prepares the next defense plan, the 

Army will face the challenge of allocating sufficient funding to meet the 

increasing needs for FCS procurement in fiscal years 2012 and 2013. 

According to an Army official, if all the needed funding cannot be 

identified, the Army will consider reducing the FCS procurement rate or 

delaying or reducing items to be spun out to current Army forces. 

However, reducing the procurement rate would increase the FCS unit 

costs and extend the time needed to deploy FCS-equipped brigade combat 

teams. 

0

2

4

6

8

10

12

14

16

18

20

22

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Dollars in billions

Source: U.S. Army (data); GAO (analysis and presentation).

Year

FCS

Army
Page 17 GAO-06-564T 

In our most recent report on the FCS, we made specific recommendations 

to the Secretary of Defense, with the intent that DOD limit its commitment 

to the FCS until it demonstrates a solid business case. DOD, in its 

response to our draft report, concurred with the intent of the 

recommendations but did not agree to limit its commitment to the FCS 

program or to take any action beyond what it had already planned to do. 

Consequently, we added several matters for congressional consideration 

in order to highlight key issues and actions that Congress may want to 

take. 

In our March report we made several specific recommendations to the 

Secretary of Defense, which are intended to limit DOD’s commitment to 

the FCS until a sound business case that is consistent with DOD 

acquisition policy and best practices can be clearly demonstrated. 

Specifically, we recommended that the Secretary of Defense lay the 

groundwork for the Army’s development of a sound FCS business case by 

tasking the spring 2006 Defense Acquisition Board to do the following: 

• Revaluate the FCS business case—including requirements, 

technologies, complementary programs, acquisition strategy, cost, and 

funding availability—in light of its own acquisition policies. 

• If the business case for FCS is found not to be executable, determine 

whether investments in FCS design- and production-related activities 

should be curbed until system-level requirements are firm and 

technologies are mature. 

• If the deficiencies in the FCS business case are judged to be 

recoverable, establish the incremental markers that are needed to 

demonstrate that FCS is proceeding on a knowledge-based approach 

and to hold the Army accountable, through periodic reporting or other 

means, for achieving those markers. 

We also recommended that the Secretary of Defense reassess the FCS cost 

estimate and funding availability based on the independent cost estimate 

and any program changes to improve its business case. 

Finally, we recommended that the Secretary of Defense establish a 

milestone review by the Defense Acquisition Board following the Army’s 

preliminary design review scheduled for 2008. This should be a go/no-go 

review of the FCS program that is based on (1) the program’s ability to 

Recent FCS 

Recommendations 

and Matters for 

Congressional 

Consideration 

Recommendations to DOD 
Page 18 GAO-06-564T 

demonstrate whether it is meeting the knowledge markers outlined above 

at times consistent with DOD policy and best practices and (2) whether 

the funds can still be made available to afford its costs. 

DOD concurred with the intent of our recommendations but did not agree 

to limit its commitment to the FCS program or to take any action beyond 

what it had already planned to do. DOD stated it is committed to the 

Army’s transformation, and that effort, in particular the FCS program, 

requires a disciplined, yet agile, acquisition construct. DOD’s response to 

our draft report did not specifically address our findings on the FCS 

program’s lack of a sound business case. DOD added that the Defense 

Acquisition Executive has determined that the FCS program is based on a 

viable acquisition strategy and that it would reevaluate the FCS acquisition 

strategy and reassess FCS cost estimates and funding in the spring 2006 

Defense Acquisition Board review. DOD also noted a Defense Acquisition 

Board review would be held for the time frame (2008) of the FCS 

preliminary design review, but it refrained from committing to making a 

milestone decision review. 

Regarding a commitment to a milestone review in 2008, we noted that the 

FCS was allowed to proceed into Systems Development and 

Demonstration prematurely, while DOD had directed a full milestone 

review update be held in November 2004. However, the review has not yet 

occurred, and it now appears it will not occur. Thus, there is no 

commitment by DOD to review the FCS business case (including all 

elements in addition to the acquisition strategy), culminating in a go/no-go 

decision in 2008 based on the preliminary design review. The increased 

responsibility of making a declarative decision adds a higher level of 

discipline and accountability than a review implies. We maintain our 

position that such a decision is warranted. 

Based on DOD’s response to our report, it did not appear that DOD 

planned to assess the FCS business case against best practices or its own 

policies. Nor did DOD agree to hold a go/no-go milestone review in 2008 

based on the preliminary design review. Congress will likely be asked to 

approve fiscal years 2008 and 2009 funding requests before the FCS 

business case is adequately demonstrated. In light of DOD’s response, 

Congress should consider directing the Secretary of Defense to: 

DOD Comments on Our 

Report and Our Evaluation 

Matters for Congressional 

Consideration 
Page 19 GAO-06-564T 

• report on the results of the May 2006 Defense Acquisition Board’s 

review of the FCS program business case in the areas of requirements, 

technologies, acquisition strategy, cost, and funding, and 

• direct DOD to conduct and report the results of a milestone review in 

2008, following the preliminary design review, that will be a go/no-go 

review of the FCS program based on its demonstration of a sound 

business case. 

Congress should also consider restricting annual appropriations for fiscal 

years 2008 and 2009 for the FCS program until definitive progress in 

establishing a sound business case is demonstrated in terms of firm 

requirements, mature technologies, a knowledge-based acquisition 

strategy, a realistic cost estimate, and sufficient funding. Most important, 

the Army must provide sufficient evidence FCS will work. 

Mr. Chairman, this concludes my prepared statement. I would be happy to 

answer any questions you or members of the subcommittee may have. 

For future questions about this statement, please contact me at (202) 512-

4841. Individuals making key contributions to this statement include 

Robert L. Ackley, Noah B. Bleicher, Lily J. Chin, Randolfo E. DeLeon, 

Marcus C. Ferguson, William R. Graveline, Michael J. Hesse, Guisseli 

Reyes, John P. Swain, and Carrie R. Wilson. 

Contacts and Staff 

Acknowledgments 

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