GAO

United States General Accounting Office

Report to Congressional Requesters

July 2000 DEFENSE

ACQUISITIONS

Howitzer Program

Experiencing Cost

Increases and

Schedule Delays

GAO/NSIAD-00-182

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Contents

Letter 3

Appendixes Appendix I: Lightweight Howitzer Fiscal Year 2001 Budget

Request 24

Appendix II: Comments From the Department of Defense 27

Tables Table 1: Key Program Events 8

Table 2: Changes in Schedule for Delivery of Eight Developmental

Lightweight Howitzers (as of May 2000) 9

Table 3: Lightweight Howitzer Fiscal Year 2001 Defense Budget

Request, Schedule for Production Quantities, and

Revised Marine Corps Procurement Schedule 25

Figures Figure 1: Lightweight 155 mm Howitzer Manufacturing Program

Events 15

Abbreviations

DOD Department of Defense
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United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-285565 Letr

July 28, 2000

The Honorable Richard J. Durbin

The Honorable Peter G. Fitzgerald

The Honorable Charles E. Grassley

The Honorable Tom Harkin

United States Senate

The Honorable Lane Evans

The Honorable James A. Leach

House of Representatives

This report responds to your January 31, 2000, request concerning the

Marine Corps’ development of the 155 mm lightweight howitzer. The

lightweight howitzer, which will be procured for use by both the Marine

Corps and the U.S. Army, is intended to provide greater mobility and

improved operational characteristics while retaining the same range and

accuracy as the current 155 mm howitzer, the M-198. The Marine Corps

entered into a cost-plus-incentive-fee development contract for the

howitzer in March 1997. The contract has a target price of $33.5 million and

requires the development and manufacturing of eight howitzers. The

program is currently in the engineering and manufacturing development

phase,1 and the Department of Defense currently plans to make a decision

to go to full-rate production in March 2002.

1

After a weapon concept is developed, the Department of Defense manages weapon

acquisition programs in three stages: (1) program definition and risk reduction;

(2) engineering and manufacturing development; and (3) production, fielding/deployment

and operational support. During engineering and manufacturing development, the principal

objectives are to translate the most promising design approach into a stable, interoperable,

producible, supportable, and cost-effective design; validate the manufacturing process or

production process; and demonstrate system capabilities through testing. In the production

phase, operational and support systems are procured, items are manufactured, operational

units are trained, and the systems are deployed.
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A British company, BAE SYSTEMS,2 is the lightweight howitzer prime

contractor; the cannon barrels are being produced under a separate

contract at the U.S. Army’s Watervleit Arsenal and will be provided as

government-furnished equipment. Although contract provisions do not

require it to do so, BAE SYSTEMS plans to subcontract 70 percent of the

howitzer’s production to subcontractors in the United States. On April 14,

2000, we sent you our response to your concerns about compliance with

the Arsenal Act3 and congressional direction that the Department of

Defense prepare a plan to include the Army’s Rock Island Arsenal in the

lightweight howitzer program. At that time, we also provided preliminary

information on the howitzer’s development cost, schedule, and

performance. This report provides updated information in response to your

request that we examine (1) whether the program is on schedule;

(2) whether costs have increased and if there is sufficient funding; (3) what

the extent of design changes is and how these changes have affected

system testing; and (4) what effect the exclusive production of the howitzer

by a foreign contractor could have on the Marine Corps’ and Army’s ability

to maintain the weapon following its procurement, particularly during

wartime.

Results in Brief The lightweight howitzer program has experienced several schedule

delays, and current schedules may not provide the Department of Defense

sufficient information by March 2002 to make an informed decision to

begin full-rate production. Following a change in prime contractors, the

contract was restructured in 1998, and the production decision was

delayed 21 months to September 2001. Manufacturing of the development

howitzers has begun at the prime contractor’s plant in Great Britain, but

manufacturing problems have caused schedule delays in the delivery of the

eight development models. These delays caused corresponding delays in

the developmental test program, and in June 2000, the production decision

was again delayed an additional 6 months (to March 2002). Further, the

contractor was unsuccessful in selecting U.S. subcontractors by August

1999 as scheduled, and as of June 2000, selections still had not yet been

made to produce the howitzer. Even with this latest production decision

2

Created by the merger of British Aerospace and Marconi Electronic Systems.

3

The Arsenal Act, 10 United States Code, Section 4532, requires that supplies needed for the

Army shall be made in U.S. factories or arsenals if they can be made there on an economical

basis.
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delay, the program may not have sufficient time to move the howitzer’s

production from Great Britain to the United States and adequately

demonstrate manufacturing processes and management controls in the

United States before the decision date. Our reviews of commercial best

practices have shown that the inability to validate the production processes

and management controls before a production decision constitutes a cost

and schedule risk that successful commercial firms consider unacceptable.

There has been significant cost growth in the lightweight howitzer prime

development contract. This cost growth represents a significant part of the

total $142.6 million development costs. In June 2000, the program office

projected the cost of the lightweight howitzer prime development contract

to be about $43.4 million—$9.9 million over the contract target cost. This

estimate prompted BAE SYSTEMS to propose restructuring the

development contract from a cost-plus-incentive-fee arrangement to a firm

fixed-price arrangement, under which the company would be responsible

for costs exceeding a new presumed higher fixed price, which would be

negotiated. As of June 2000, the program office was discussing this

proposal with Defense officials and negotiating specific contract provisions

with the contractor. In addition, projected costs for producing the

lightweight howitzer cannon barrels for the Marine Corps have increased.

The Marine Corps is procuring the barrels from the Army’s Watervliet

Arsenal, which is required to include all costs, including overhead, in prices

charged to non-Army customers. Because of increased Watervliet overhead

rates, as of March 2000, unit cost estimates for the barrels for the Marine

Corps had more than doubled—from $106,000 to over $260,000—since the

original 1996 cost estimate. By May 2000, Department of Defense cost

cutting measures had reduced these overhead estimates, but the Marine

Corps still expects costs to exceed its original budget by $20.5 million.

Several design changes have been made to the lightweight howitzer;

however, testing of the modified weapon will be delayed by the late

delivery of the howitzers to the test program. Based on the results of tests

conducted on the lightweight howitzer prototype since 1996, design

modifications have been made to strengthen the assembly that holds the

cannon barrel and to enlarge the spades used to anchor the weapon

securely against recoil. However, testing of the intended production

configuration that incorporates these changes will not be possible until the

third of eight development units is manufactured and delivered. The third

unit, originally scheduled for delivery in June 2000, is now scheduled for

delivery in November 2000. The program office is adjusting its test plans to
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complete the testing needed to verify system performance and initial

operational capabilities before the production decision.

The effect of production by a foreign contractor on the Marine Corps’ and

Army’s ability to support the howitzer cannot be assessed until the

contractor determines where production models will be built. There is no

contract requirement to produce the howitzer in the United States;

however, if subcontractor costs can be held within the production

contract’s ceiling price, BAE SYSTEMS said that it plans to subcontract

70 percent of the howitzers’ production in the United States. To provide

assurances that the howitzer can be supported in wartime, program

officials are requiring the company to provide a plan to manufacture

100 percent of the howitzer’s parts in the United States.

The Department of Defense had no comments on the report, but provided

technical clarifications and comments, which we incorporated as

appropriate.

Background The Department of Defense (DOD) is acquiring the lightweight 155 mm

howitzer to replace its M-198 towed howitzer. The new howitzer will be a

lighter, more transportable, and mobile weapon for strategic and tactical

movements. Weapon performance requirements include a maximum

weight of 9,000 pounds, reduced time to place the weapon in a firing

position, and increased rate of fire compared with current weapons. The

program is currently scheduled to complete development in March 2002

and begin production under an option in the development contract. Current

plans call for the procurement of 450 lightweight howitzers for the Marine

Corps and 273 for the Army. However, Army quantities could rise to

387 under new force structure plans now being finalized. Great Britain and

Italy intend to procure about 70 lightweight howitzers each.

The original engineering and manufacturing development contract was

signed with Cadillac Gage Textron, Inc., in March 1997. Textron, however,

had extensive management problems, and in December 1998, Vickers

Shipbuilding and Engineering Limited—which had been responsible for

design of the howitzer under Textron—took over responsibilities as the

prime contractor. Renegotiating the development contract required

establishing a new program baseline schedule and increased overall

program costs by about $43 million, to a total of $1,129.9 million.
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BAE SYSTEMS acquired Vickers Shipbuilding in November 1999 and took

over as the prime development contractor. BAE SYSTEMS is developing

the lightweight howitzer under a cost-plus-incentive-fee contract with a

current target price of $33.5 million. This contract requires the

development and manufacturing of eight howitzers and established ceiling

prices for the first two production options. Under the contract, BAE

SYSTEMS receives a 6-percent fee if it meets the target cost and up to

$900,000 in additional fees if the final cost is below the target. If the target

cost is exceeded, the contractor pays 30 percent of the increased cost.

Initially, the 30-percent share is deducted from the contractor’s fee until the

fee is gone, at which point the contractor is liable for up to $5 million of the

final cost. The contract also provides for annual award fees based on

performance in specific technical areas designated by program

management.

The development contract also includes long lead procurement and

production options for the first (70 units) and second (120 units)

production lots. Each option has a unit target price and a unit ceiling price,4

with a unit price reduction of about 12 percent for the second lot. If BAE

SYSTEMS exceeds the ceiling price for these lots, the company bears full

responsibility for the additional cost.

The lightweight howitzer cannon barrel is to be produced under separate

contract at the U.S. Army Watervliet Arsenal and will be provided to BAE

SYSTEMS as government-furnished equipment. The development program

is funded and led by the Marine Corps through the lightweight howitzer

program office, which manages both the BAE SYSTEMS and Watervliet

contracts for the government. The lightweight howitzer will also

incorporate the towed artillery digitization upgrade, which is a precise

location and targeting system being developed by the Army. The Army will

provide this upgrade as government-furnished equipment and assume

program management responsibilities for the lightweight howitzer program

upon completion of deliveries to the Marine Corps.

The Army’s two manufacturing arsenals, Watervliet, New York, and Rock

Island, Illinois, were established in the 1800s to provide a primary

manufacturing source for the military’s guns and other war-fighting

equipment. In 1920, the Congress enacted the Arsenal Act (10 U.S.C. 4532),

which requires the Army to have its supplies made in U.S. factories or

4

All prices are subject to an escalation provision.
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arsenals provided they can produce the supplies on an economical basis.

Use of the arsenals has declined significantly since World War II because

the private sector has assumed an increasingly larger share of this work. In

November 1998, we reported that since the end of the Cold War, workloads

and employment at these two remaining Army arsenals had declined

substantially, and operating costs had escalated as fixed costs were spread

among increasingly smaller amounts of workload.5

Program Schedule Has

Slipped, and

Challenges Remain

When Vickers assumed prime contractor responsibility for the program in

December 1998, the program office established a new baseline schedule for

the program. Under this schedule, the decision to begin the production

phase of the program (Milestone III) was delayed 21 months, from

December 1999 to September 2001. Also, the initial operational capability—

the availability of the first Marine Corps unit that is equipped and trained to

operate the howitzer—was delayed 20 months, from March 2002 to

November 2003. The December 1998 schedule delays for major program

events are shown in table 1.

Table 1: Key Program Events

Source: Lightweight howitzer program office.

In August 1999, BAE SYSTEMS prepared a plan to make up for delays that

had occurred at that time, but the company was unable to keep up the pace

needed to maintain the schedules, and delays continued. Fabrication of

5

Army Industrial Facilities: Workforce Requirements and Related Issued Affecting Depots

and Arsenals (GAO/NSIAD-99-31, Nov. 30, 1998).

Program event

Original

baseline

December

1998 baseline

Months

delayed

First test howitzer delivery June 1998 May 2000 22

Production approval (Milestone III

review)

Dec. 1999 Sept. 2001 21

Production contract award Dec. 1999 Oct. 2001 22

First production howitzer Mar. 2001 Jan. 2003 22

Marine Corps initial operational

capability

Mar. 2002 Nov. 2003 20

Army initial operational capability Mar. 2005 Mar. 2005 0
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eight development howitzers is underway in Great Britain, but due to

manufacturing difficulties, scheduled deliveries of development howitzers

will be delayed up to 7 months.

In February 2000, an inspection revealed manufacturing quality problems

with the first developmental howitzer. The primary source of the problems

was in welding and fabricating critical titanium components. To reduce the

howitzer’s weight, the basic structural elements are made of titanium. As a

result, extensive use of precision, high-technology titanium welding

techniques will be required in the manufacturing process. Following

engineering review, BAE SYSTEMS revised its manufacturing procedures

and tooling to incorporate necessary changes, and delivery schedules were

revised. Fixing these problems will require reworking the welding process

and will delay other manufacturing activities. Program officials said that

they are learning important lessons regarding welding techniques, heat

treatment, and the use of fixtures in the howitzer’s production. In May 2000,

the contractor and program office agreed to revise the schedule for

delivering eight developmental howitzers. (See table 2.)

Table 2: Changes in Schedule for Delivery of Eight Developmental Lightweight

Howitzers (as of May 2000)

Source: Lightweight howitzer program office.

The revised schedule shows the last four lightweight howitzers−50 percent

of the development effort—are to be delivered on the same date. Program

officials said the delivery date shown represents the last day that these four

howitzers can be made available to the government to support preparations

for operational testing. Program officials told us that they anticipate that

final assembly and integration of the four howitzers will actually be

Developmental howitzer

(unit number)

Original

delivery date

Revised delivery

date

Calendar months

delayed

1 05/00 06/00 1

2 05/00 10/00 5

3 06/00 11/00 5

4 06/00 01/01 7

5 10/00 02/01 4

6 10/00 02/01 4

7 10/00 02/01 4

8 10/00 02/01 4
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staggered by a few weeks. They expect initial test firings of each weapon

by the contractor to occur in January and February 2001, prior to delivery

to the government.

The delays in deliveries of developmental lightweight howitzers

necessitated a delay in the production decision to accommodate

completion of developmental and operational testing. The production

decision was initially delayed 3 months, but the requirements for cold

weather testing required an additional 3-month delay to March 2002. First

production delivery is currently scheduled for January 2003. Other program

milestones remain the same.

Selection of U.S. Production

Subcontractors Has Been

Delayed

BAE SYSTEMS plans to subcontract up to 70 percent of its lightweight

howitzer production work at U.S. facilities. In 1999, the contractor solicited

bids from U.S. contractors with the intention of selecting U.S. participants

by August 1999. Bids were received from the U.S. Army Rock Island

Arsenal and a private contractor, but both were rejected because the

proposed costs were too high for BAE SYSTEMS to meet the production

contract ceiling price. BAE SYSTEMS has restructured the content of the

subcontractor packages and has again solicited bids from U.S. contractors.

On April 25, 2000, BAE SYSTEMS asked U.S. companies to indicate their

interest in the lightweight howitzer production program by May 10, 2000.

The company sought statements of interest for the manufacture of

subassemblies and for final assembly and testing of the completed howitzer

for delivery to the government. A total of 51 contractors, including Rock

Island Arsenal, indicated interest in some or all of the lightweight howitzer

subcontracting packages, and BAE SYSTEMS identified 19 of these as

competent to meet the requirements. BAE SYSTEMS intends to select the

subcontractors and complete negotiations by November 2000.

BAE SYSTEMS’ decision to select U.S. subcontractors for lightweight

howitzer production is contingent on holding costs to the production

ceiling contained in the development contract options. If U.S.

manufacturers’ prices do not meet these constraints, BAE SYSTEMS may

retain all of the manufacturing and assembly effort in Great Britain.

Program officials stated that on the basis of the costs of U.S. suppliers

during the 1999 solicitation (prior to the addition of contractor overhead

rates), BAE SYSTEMS is confident that production contracts can be

obtained in the United States.
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Achieving Production

Readiness as Scheduled Will

Be a Challenge

If BAE SYSTEMS completes selection of U.S. subcontractors for

production of the lightweight howitzer in November 2000, there will be less

than 18 months to meet the numerous challenges involved in moving and

establishing manufacturing processes for the production units in the

United States. Although manufacturing the development prototypes is

underway in Great Britain, different facilities, personnel, and tooling are

planned for the production units. Manufacturing processes established in a

single location during development may have to be divided and dispersed

to multiple facilities prior to the start of production. Manufacturing

drawings and specifications will have to be converted to U.S.

measurements and producibility standards. Finally, the howitzers

manufactured at new facilities must demonstrate that they meet the same

performance standards as the prototypes used in the development and

initial operational testing to verify system performance.

If U.S. subcontractors are selected, the lightweight howitzer program office

must avoid the manufacturing and schedule problems experienced in an

earlier attempt to produce a British-designed howitzer in the United States.

In 1984, DOD selected a 105 mm lightweight howitzer designed by Royal

Ordnance, a British contractor, to be built for the Army by the Watervliet

and Rock Island Arsenals. Although the howitzer, designated the M-119,

was being produced in Great Britain, converting the British design, metric

measurements, and manufacturing approach to U.S. measurements and

DOD’s rigorous producibility standards cost about $30 million and caused a

2-year delay in the original production schedule.

M-119 manufacturing problems were caused principally by the British

technical data package6 supplied to the arsenals because it did not meet

DOD producibility standards. Specific problems included inadequate

design drawings and conversion of metric measurements, as well as

problems with the British approach of tailoring (hand fitting) parts to each

weapon during production, rather than the U.S. approach of having

standard parts produced for all weapons. These problems required timeconsuming reengineering to meet U.S. requirements. Program officials

stated that to prevent these problems on the 155 mm lightweight howitzer,

they have required BAE SYSTEMS to provide an “Americanized” technical

data package (including drawings to U.S. non-metric standards) as part of

6

A technical data package includes the engineering drawings, technical specifications, and

production processes stated in terms suitable for producing an item with the specified

operational characteristics.
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the development contract. They are also using private U.S. contractors and

Rock Island Arsenal officials to review technical data for producibility.

While some U.S. subcontractor tasks sought by BAE SYSTEMS may require

little preparation, others may require extensive production preparation.

For example, titanium welding is a precision, high-technology procedure

that is critical to the lightweight howitzer manufacturing process. During

development, BAE SYSTEMS is doing this welding by hand, without the

mechanical guides and controls that experts say will be needed for higher

rate production manufacturing. Expert consultants from the Edison

Welding Institute estimate that establishing the processes, tooling, and

expertise required for production rate capability in a U.S. plant will take

18 to 24 months before work on the first production article can be started if

the contractor has no previous titanium welding experience. Program

officials stated that BAE SYSTEMS is considering only firms with titanium

welding experience for this portion of the manufacturing effort; this should

reduce the preparation time needed.

Government funds to finance production preparations required for the new

U.S. subcontractors will not be made available to the prime contractor until

the production contract is awarded; this is not scheduled until March 2002.

BAE SYSTEMS said that it intends to provide up to $10 million of its own

money in advance of award of the production contract to finance

production start-up activities by the selected subcontractors to ensure that

production manufacturing capability is available on schedule. BAE

SYSTEMS has proposed to use this money to fund the manufacture of three

to five production-configured lightweight howitzers as a means of initiating

and qualifying subcontractor operations. Once completed and tested to

ensure compliance with performance standards and contractual

requirements, these weapons could be delivered to the government as

production items. Contractual provisions for this arrangement would be

negotiated and incorporated in the development contract or formalized

through a Memorandum of Understanding between the program office and

BAE SYSTEMS, according to program officials.

Program officials stated that the agreement currently being negotiated with

BAE SYSTEMS involves funding of three advanced production weapons.

Transfer of manufacturing would begin upon completion of subcontractor

selection in November of 2000 and would continue until July 2001, when

fabrication of the first advanced production (AP-1) howitzer is begun. The

three advanced production weapons will be completed in December 2001,
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April 2002, and June 2002 (see fig. 1). Following their completion, these

weapons would be used for contractor testing.

Validating the manufacturing processes and management controls needed

to manufacture hardware items that conform consistently is a critical

objective of the development phase. A successful production readiness

review7 to document completion of this activity is a primary criterion for

approval of the lightweight howitzer’s production. To ensure that all key

manufacturing processes are under control so that quality, volume, and

cost of the output is proven and acceptable, the best commercial firms

accumulate the necessary knowledge of actual processes and eliminate

unknowns well ahead of production. Defense guidance states that it is

important that physical facilities, personnel, and manufacturing

documentation be evaluated during this review.

As shown in figure 1, the extent of U.S. manufacturing start-up prior to the

production decision is highly dependent on BAE SYSTEMS advanced

funding. The production readiness review will start in April 2001, 2 months

after the scheduled completion of development manufacturing. The review

will be completed in January 2002, 2 months before the scheduled

production decision. The only manufacturing activity that will be ongoing

during the production readiness review would be the advanced production,

if funded by BAE SYSTEMS. If BAE SYSTEMS funds advanced production

and completes it as the program office currently expects, the first advanced

production lightweight howitzer would be completed and tested by the

contractor, but not by the government, by March 2002, the production

decision date.

It is uncertain, however, to what extent the production readiness review

will be able to validate lightweight howitzer production processes and

controls before the production decision is made. To date, subcontractor

selection has not been completed, renegotiation of the development

contract is still in process, and specifics of the advanced production

program are unknown. Until manufacturing arrangements are known,

subcontractor processes are defined and integrated, and management and

quality controls are in place, the program office cannot demonstrate

lightweight howitzer production readiness.

7

Production readiness review is a formal examination of a program to determine whether

the design is ready for production, production engineering problems have been resolved,

and the producer has adequately planned for the production phase.
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For example, contractor management controls, subcontractor

manufacturing processes, and quality control systems will be important to

the lightweight howitzer production effort, particularly in the early stages,

when BAE SYSTEMS integrates the multiple U.S. production efforts.

Development manufacturing was conducted in one location in Great

Britain, but must be split up to multiple locations for U.S. participation and

then reintegrated to provide a single production effort. Defining the

individual processes, setting up and proving multiple U.S. manufacturing

efforts, and integrating the individual management control systems to

provide a reliable information and control system prior to the production

decision will be a major challenge.

Major events in the lightweight howitzer manufacturing program plans are

shown in figure 1.
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Figure 1: Lightweight 155 mm Howitzer Manufacturing Program Events

Source: Lightweight howitzer program office.

2001 2002 2000 2003

Development manufacturing

Completed February 2001

Development testing

Completed February 2002

Transfer of production

November 2000 - June 2001

U.S. manufacturing

Starting July 2001

Production milestone

March 2002

First production delivery

January 2003

AP

-1

AP

-2

AP

-3

Production readiness review

April 2001 - January 2002

Contractor funded Government funded

AP: Contractor funded advance production howitzer

Subcontractor selection

August - November 2000

Contractor integration and testing

January - March 2002 AP-1
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Commercial Best Practices

Ensure Production

Readiness Before the

Production Decision

Under DOD’s acquisition process, the production decision represents final

permission to produce, deploy, and support a weapon system and provides

approval for award of a production contract. In our past work on the

application of commercial best practices to DOD weapon acquisitions, we

have pointed out the need for the Department to obtain better knowledge

of the producibility of new products and better control of manufacturing

processes before initiating production.8 The Department traditionally has

not had the same level of knowledge commercial firms generally require

before starting production and, as a result, has experienced turbulence in

outcomes as it moves to production. We have also pointed out that

successful commercial programs consider that, without this knowledge,

they face an unacceptable risk of delays and increased costs.

A production review is a critical part of assessing readiness for production.

However, production approval and award of a production contract based

on review of plans and in-process manufacturing preparations, as in the

case of the lightweight howitzer, represents a substantially higher risk than

actions based on established performance. Our work on commercial best

practices has shown that successful commercial firms consider not having

knowledge of the producibility of a new product and control of

manufacturing processes prior to initiating production an unacceptable

risk.

Program Has

Experienced Cost

Overruns and Funding

Shortfalls

The lightweight howitzer program office is currently engaged in efforts to

manage significant cost growth in both the development contract and the

production of the government-furnished cannon barrels. The program

office projects that the BAE SYSTEMS development contract will overrun

its current $33.5-million target price by about $10 million, or 30 percent,

and is considering a contractor proposal to renegotiate the contract. At the

same time, projected increases in the cost of cannon barrels for the Marine

Corps’ production program has resulted in a $20.5-million deficit in Marine

Corps funding.

8

Best Practices: Successful Application to Weapon Acquisitions Requires Changes in DOD’s

Environment (GAO/NSIAD-98-56, Feb. 24, 1998).
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As of June 2000, the lightweight howitzer program office projected that the

development contract will cost $43.4 million, $9.9 million over the target

price. Under contract provisions, 30 percent of this cost growth, or

$3 million, is the responsibility of BAE SYSTEMS ($1.8 million loss-of-fee

plus $1.2 million in increased costs = $3 million).9 The contractor’s May

2000 proposal to renegotiate this contract would increase the cost to the

government, but BAE SYSTEMS would be responsible for 100 percent of

any costs that exceed the new contract price. The program office is

currently discussing renegotiation of the development contract with

Defense procurement officials and is negotiating specific contract

modifications with BAE SYSTEMS officials. There would be no change in

the price of the howitzer’s production options.

DOD has also reduced a projected shortfall in the Marine Corps funds

budgeted for the lightweight howitzer production. The shortfall was caused

by an increase in cost for the government-furnished cannon barrels. The

cannon barrels are being produced under a separate contract with the U.S.

Army Watervliet Arsenal. Under Army Working Capital Fund provisions,

overhead rates at Watervliet Arsenal must be included in the price of

cannon barrels manufactured for the Marine Corps.10 As a result of

increased overhead costs, Watervliet Arsenal’s estimated cost to the Marine

Corps for cannon barrels more than doubled, from $106,000 to more than

$260,000, since the original program estimate.

Increased cannon barrel costs threatened to increase the cost of the Marine

Corps lightweight howitzer production program to $70 million beyond the

amount budgeted by the Marine Corps. To reduce these costs, in March

2000, the lightweight howitzer program office explored alternative cannon

barrel procurement approaches. The program office requested cost

information and manufacturing data on cannon production from Watervliet

Arsenal and two commercial contractors.

9

The government is responsible for 70 percent of any additional cost growth, up to a total

contract cost of $56.2 million. Beyond that, the government is responsible for all costs.

10Under Army Arsenal pricing policy, arsenals are required to include all costs, including

indirect overhead costs and prior year losses, in calculating labor rates to be charged to

their non-Army customers. As a result, these overhead costs are included in the price of the

cannon barrels for the Marine Corps but are not directly charged for the cannon barrels to

be produced for the Army.
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In its proposal, Watervliet Arsenal outlined a program to reduce personnel,

decrease excess facilities, and control costs. In addition, Watervliet has

received new contracts that have increased its projected business base and

will further reduce overhead charges to the lightweight howitzer program.

Reduced overhead projections lowered the estimated cost to about

$183,600 per cannon barrel. This cost, while still significantly higher than

the original estimate, would lower the Marine Corps’ budget deficit by

about 70 percent to $20.5 million. Army officials stated that other factors

could further reduce the projected Marine Corps funding deficit. These

include additional efforts currently being considered to reduce facility,

personnel, and other operating costs at Watervliet; future increases in

business at the arsenal; and an acceleration of the Army’s lightweight

howitzer production.

Defense cost experts and lightweight howitzer program office personnel

analyzed the three proposals to determine the validity of the cost data and

the potential program risk involved in each proposal. In early May 2000,

Navy acquisition officials responsible for the Marine Corps procurement

budget decided to maintain howitzer production at the Watervliet Arsenal.

At the same time, the Marine Corps has proposed slowing its scheduled

production delivery rate from that shown in the fiscal year 2001 budget. On

the basis of this delivery schedule, the Army and the Navy finalized an

agreement on lightweight howitzer cannon barrel costs on June 14, 2000.

Under this agreement, the Army committed to an average fixed price of

$183,600 per barrel to the Marine Corps. The Army would fund any higher

cost or retain any savings, depending on the actual cost of cannon barrels

when delivered.

Details of the fiscal year 2001 lightweight howitzer congressional budget

request and the proposed revised Marine Corps delivery schedule are in

appendix I.

Testing Design

Changes Await

Howitzer Deliveries

Delays in lightweight howitzer deliveries to the test program will reduce

the time available to test design changes made to the prototype design. The

impact of these delays will not be known until the program office realigns

its test program. Testing prior to the production decision must successfully

demonstrate that the lightweight howitzer design to be built in the

production program will comply with performance specifications and meet

mission needs. Recent delivery schedule changes caused the Marine Corps

to extend the test program by 6 months to accommodate performance

testing in a cold-weather environment. This extension required a
B-285565

Page 19 GAO/NSIAD-00-182 Defense Acquisitions

corresponding delay in the Milestone III production decision to March

2002. The program office is now adjusting its test plans to complete the

testing needed to verify system performance and initial operational

capabilities before the production decision.

Production Models Will

Incorporate Design Changes

Primary among the modifications made to the lightweight howitzer

prototype are enhancements to improve the howitzer’s accuracy and

stability by strengthening the saddle component that holds the cannon

barrel and to better anchor the weapon against recoil. These changes have

been incorporated in the development design. However, because the

modified saddle will not be available in time for incorporation on the first

two development models, it will have to be retrofitted to the weapons after

delivery of the final development howitzer (scheduled for February 2001).

Modifications, however, have increased the howitzer’s weight, and current

projections are that the actual weight of development models will be very

close to the limit of 9,000 pounds. At the same time, no existing prototype

incorporates all the development design changes, and no testing of full

production design will be possible until the third development unit is

manufactured and delivered to the test program in November 2000.

Program officials are confident the production design will meet

performance requirements. They said that lengthy testing of the prototypes

greatly facilitated the design and improvement process, and because

Vickers has been the primary design contractor from the beginning of the

development program, this effort was not significantly affected by program

management changes.

Delivery Delays Increase

Challenge to Test Program

The lightweight howitzer development test program calls for the first four

howitzers to be used primarily to verify over 300 specific system

performance requirements contained in the development contract. The

final four development howitzers will be used primarily to conduct the

initial testing of the systems’ capabilities in an operational environment;

this testing is required before the production decision is made. The initial

priority in the test program will be given to safety testing and the testing

needed to begin operational testing. In June 2000, program officials told us

that because of climate conditions required for cold-weather testing, the

late deliveries of production-configured test howitzers required a 6-month

delay in the test program to provide for winter testing in Alaska in 2002.
B-285565

Page 20 GAO/NSIAD-00-182 Defense Acquisitions

The extension of the lightweight howitzer test program will provide more

time for testing than was available under the original test program. The

program office is currently working on the test program revisions needed

to ensure that all 300-plus performance requirements are tested within the

time provided under the new delivery schedule. Although the first

development model was delivered to the Marine Corps in late June 2000,

the new test schedule is dependent on developmental units 5 through

8 being delivered in February 2001. As discussed above, this delivery date is

based on when the weapons are needed for operational testing

preparations. Any delay in these deliveries could compress the testing

schedule.

Manufacturing

Decisions Needed to

Clarify Supportability

Concerns

Until manufacturing plans are finalized, it is difficult to assess the ability of

the Army and the Marine Corps to support the lightweight howitzer,

particularly if the howitzers are produced and assembled in Great Britain.

Program officials said that if 70 percent of the howitzers are produced in

the United States, as BAE SYSTEMS plans, the weapon could be supported

in wartime. In addition, BAE SYSTEMS will conduct an analysis to ensure

that all howitzer parts (including those produced in Great Britain) can be

produced in the United States, should the need arise.

Although BAE SYSTEMS plans to produce 70 percent of the lightweight

howitzers in the United States, the contractor is not required to do so under

the terms of the production options contained in the development contract.

The production options contain fixed ceiling prices and U.S. production is

contingent on U.S. subcontractor proposals that allow BAE SYSTEMS to

ensure that the ceiling cost is not exceeded. As discussed previously, BAE

SYSTEMS is confident that it will obtain bids from U.S. subcontractors that

will keep development and production costs within the ceiling prices.

It is unclear what the support implications for U.S. forces would be if all

lightweight howitzer production occurs in Great Britain. DOD’s prior

experience with the M-119 howitzer showed that even after production

problems were resolved at U.S. facilities, differences between American

and British maintenance philosophy and organization of maintenance

support caused logistics planning and supportability problems throughout

the life of the M-119.
B-285565

Page 21 GAO/NSIAD-00-182 Defense Acquisitions

Agency Comments and

Our Evaluation

DOD had no comments on a draft of this report. DOD’s letter is reprinted in

appendix II. DOD officials provided technical clarifications and comments

on the report that we incorporated as appropriate.

Scope and

Methodology

To determine the program schedule, cost and funding, and system

performance of the lightweight howitzer program, we reviewed program

documents and the fiscal year 2001 Defense budget. We also interviewed

program management personnel and representatives of the prime

contractor at the lightweight howitzer program office, Picatinny Arsenal,

Picatinny, New Jersey; and resource management personnel at

Headquarters, Department of the Army, Pentagon, and Army Materiel

Command, Alexandria, Virginia. To understand manufacturing

requirements for titanium welding, we discussed the issues with expert

personnel from the Edison Welding Institute, Columbus, Ohio, who are

consultants to the program office and Rock Island Arsenal on the program.

To determine the status of issues relating to Army arsenals and arsenal

policy, we interviewed officials at Army Material Command’s Industrial

Operations Command, Rock Island, Illinois. We also visited the Army’s

Rock Island Arsenal and discussed issues related to the lightweight

howitzer program and the status and manufacturing capability of the

arsenal with key management personnel. To address what effect howitzer

production by a foreign contractor could have on the Marine Corps’ and the

Army’s ability to support the weapon, we reviewed contract requirements,

discussed issues with program officials, and examined DOD’s prior

experiences with a British-designed howitzer.

We conducted our work from February through July 2000 in accordance

with generally accepted government auditing standards and generally

relied upon Defense-provided data.

We are sending copies of this report to the Honorable William S. Cohen,

Secretary of Defense; the Honorable Richard Danzig, Secretary of the Navy;

General James L. Jones, Commandant of the Marine Corps; the Honorable

Louis Caldera, Secretary of the Army; the Honorable Jacob J. Lew, Director,

Office of Management and Budget; and other interested congressional

committees. Copies will be available to others upon request.
B-285565

Page 22 GAO/NSIAD-00-182 Defense Acquisitions

Please contact me at (202) 512-4841 if you or your staff have any questions

concerning this report. Key contributors to this report were

Robert P. Kissel, Jr., Richard J. Price, and Mary K. Quinlan.

James F. Wiggins, Associate Director

Defense Acquisitions Issues
Page 23 GAO/NSIAD-00-182 Defense Acquisitions
Page 24 GAO/NSIAD-00-182 Defense Acquisitions

Appendix I

Lightweight Howitzer Fiscal Year 2001 Budget Apendxies

Request ApendxiI

The lightweight howitzer will eventually incorporate the Army’s towed

artillery digitization upgrade, which is budgeted separately. The towed

artillery digitization upgrade, a precise location and targeting system, is

being developed by the Army and will be provided as government-furnished

equipment. The upgrade will be included on the howitzer units produced

for the Army; however, it will not be incorporated on the howitzers

delivered to the Marine Corps but will be added at a later date.

The Fiscal Year 2001 U.S. Army and U.S. Marine Corps Defense Budget

Requests for the 155 mm lightweight howitzer program and the towed

artillery digitization program are summarized in table 3. The table also

shows production quantities and the Marine Corps’ May 2000 revised

procurement schedule for production quantities. Changes to the Marine

Corps’ budget needed to implement this schedule will be included in the

fiscal year 2002 Defense budget.
Appendix I

Lightweight Howitzer Fiscal Year 2001

Budget Request

Page 25 GAO/NSIAD-00-182 Defense Acquisitions

Table 3: Lightweight Howitzer Fiscal Year 2001 Defense Budget Request, Schedule for Production Quantities, and Revised

Marine Corps Procurement Schedule

a

RDT&E = research, development, test, and evaluation.

b

Towed artillery digitization (TAD) program.

Source: Fiscal Year 2001 Department of Defense Budget, February 2000.

In addition to the lightweight howitzer budget request, the Army’s fiscal

year 2001 budget request for Army arsenals includes a request for an

(dollars in millions)

Fiscal Year 2001 Defense budget request

Production procurement

quantity/schedule

Revised

procurement

quantity/schedule

Fiscal year

Marine

Corps

howitzer

RDT&Ea

Marine

Corps

howitzer

production

Marine

Corps towed

artillery

digitizationb

production

Army towed

artillery

digitizationb

RDT&E

Army

howitzer

and towed

artillery

digitization

production

Marine

Corps Army Marine Corps

1995 $6.3

1996 14.4

1997 13.5

1998 36.2

1999 31.9 $1.0

2000 27.1 4.8

2001 13.2 $11.1 17.4

2002 90.1 10.7 $0.1 70 70

2003 197.1 9.9 7.4 185 5 120

2004 142.4 26.5 195 20 130

2005 0.2 42.0 31 130

2006 $33.0 103.1 64

2007 18.7 133.3 80

2008 81.6 51

2009 56.9 22

Subtotal $142.6 $440.9 $51.7 $43.8 $450.9

Total $1,129.9 450 273 450
Appendix I

Lightweight Howitzer Fiscal Year 2001

Budget Request

Page 26 GAO/NSIAD-00-182 Defense Acquisitions

increase of $25 million.1 If provided, $20 million of this money would be

allocated to the Watervliet arsenal (responsible for producing the howitzer

cannon barrels) to offset costs of maintaining excess capacity. This would

reduce overhead charges at Watervliet in fiscal year 2001. However,

because major production activity for the lightweight howitzer program

will not start until fiscal year 2002, this reduction would not affect the

Marine Corps’ current $20.5 million estimated funding shortfall for cannon

barrels unless annual subsidies continue through the completion of the

Marine Corps’ production program in fiscal year 2005. Army budget

projections, included in the fiscal year 2001 budget submission, do not

include continuation of this subsidy.

1

The Army requires arsenals to maintain capacity that might be needed in the future. To

compensate the arsenals for this, the Army budget includes an account for “underutilized

capacity”; however, Army Industrial Operations Command officials said that in recent years

annual funding of this account has provided less than 40 percent of the budget needed to

cover these costs.
Page 27 GAO/NSIAD-00-182 Defense Acquisitions

Appendix II

Comments From the Department of Defense ApendxiI

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