GAO-01-675R Defense Acquisitions

United States General Accounting Office

Washington, DC 20548

May 22, 2001

The Honorable James Inhofe

Chairman

The Honorable Daniel Akaka

Ranking Member

Subcommittee on Readiness and Management Support

Committee on Armed Services

United States Senate

Subject: Defense Acquisitions: Navy and Marine Corps Pilot Program Initiatives to

Reduce Total Ownership Costs

The cost of operating and supporting the services’ weapon systems is absorbing an

increasing share of the defense budget and is reducing funds available for buying new

systems. As a result, older weapons are being retained in the inventory longer, which

further increases their operating and support costs. Operating and support costs

include costs for fuel, repair parts, maintenance, and contract and support services,

as well as for all civilian and military personnel associated with a weapon system.

The Department of Defense (DOD) has set broad goals for lowering the operating and

support costs of both weapon systems in development and those already fielded. The

projected life-cycle costs for developmental systems are expected to be 20 to 50

percent less than the systems being replaced. The operating and support costs of

fielded systems are expected to be reduced 20 percent by 2005. The Department has

established baselines against which the programs can calculate progress and is

monitoring progress through quarterly reports.

In April 1998, DOD established an initiative that expanded program managers’

responsibilities for designing and producing new weapon systems to include more

accountability for the total ownership cost of the system, including its operating and

support costs. Under this initiative, each service was to designate 10 programs as

pilots to test innovative approaches to reduce total ownership costs, especially

operating and support costs.
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This is the third in a series of reports in response to your request that we evaluate the

military services' efforts to reduce weapon systems operating and support costs. We

previously reported on Army and Air Force efforts.1 We reported a lack of

accountability and priority in reducing their systems’ operating and support costs. We

recommended that the Army and Air Force develop operating and support cost goals

for each weapon system and track progress toward achieving those goals.

To complete our evaluation of the military services' operating and support cost

reduction efforts, we examined 10 Navy and Marine Corps pilot programs and briefed

your staff on the results. This letter summarizes our observations on the Navy and

Marine Corps pilot programs and provides, as an enclosure, our briefing slides.

Summary of Navy and Marine Corps Operating and Support Cost Reduction Efforts

The Navy and Marine Corps cited a number of initiatives to reduce weapon system

operating and support costs. For example, they are using an open architecture design

method that reduces the cost of component replacement and changes later in system

life. They are also providing contractor incentives to include more operating and

support cost saving features in the system's design. In addition, the Navy has other

related objectives and initiatives that could significantly reduce operating and

support costs. These include reducing manpower requirements, improving the

quality of life for sailors, improving the responsiveness of the supply system, and

improving performance by improving reliability and reducing maintenance

requirements.

Through these and other initiatives, the Navy and Marine Corps have reported

progress in reducing operating and support cost in its pilot programs. The table

below shows the reported progress of the programs as estimated for fiscal year 2005.

Table 1: Navy and Marine Corps Cost Avoidance/Reduction in Fiscal Year 2005

Dollars in millions

Pilot program Cost avoidance/reduction fiscal year 2005

Standoff Land Attack Missile Expanded

Response

$3.3

H-60 Helicopter 10.0

Aviation Support Equipment 161.0

EA-6B 15.8

CG-47 Class Aegis Cruiser 62.3

CVN—68 Class Carrier (9 carriers) 57.6

Medium Tactical Vehicle Replacement 20.0

Advanced Amphibious Assault Vehicle 0.3

LPD-17 80.0

Common Ship 91.0

 1

Defense Acquisitions: Air Force Operating and Support Cost Reductions Need Higher Priority

(GAO/NSIAD-00-165, Aug. 29, 2000) and Defense Acquisitions: Higher Priority Needed for Army

Operating and Support Cost Reduction Efforts (GAO/NSIAD-00-197, Sept. 29, 2000).
Page 3 GAO-01-675R Defense Acquisitions

Although each program expects some costs to decline, the Navy and Marine Corps

report that costs could decline even further if some challenges were successfully

resolved. Similar to our findings in the Army and Air Force, Navy program officials

report that operating and support cost reductions do not have the same funding

priority as performance or safety issues. Program officials also report that the

database used to track operating and support costs could be improved. Officials

agreed that focusing attention on operating and support costs through the pilot

programs as well as through Navy and Marine Corps policy resulted in incentives to

lower costs.

In our previous reports, we recommended that the Army and Air Force develop

specific and measurable operating and support cost requirements for each of their

weapon systems and track progress in meeting them in the same manner that

development and procurement costs are established, tracked, and measured. We

believe that the Navy and Marine Corps, like the Army and Air Force, would benefit

from early establishment of specific, measurable requirements for each weapon

system’s operating and support costs and monitoring of progress toward achieving

those requirements.

The enclosure to this letter contains the briefing slides that we prepared on the Navy

and Marine Corps initiatives to reduce operating and support costs. These briefing

slides were reviewed by officials from the Navy, the Marine Corps, and the Office of

the Secretary of Defense, and these officials provided oral comments on the technical

accuracy as well as tone and clarity of the presentation. We incorporated their

comments as appropriate. The officials agreed with our observations noting that

readiness was the Navy and Marine Corps first priority.

If you or your staff have any questions on these matters, please call me on (202) 512-

4841 or Bill Graveline on (256) 650-1414.

James F. Wiggins

Director, Acquisition and Sourcing Management

Enclosure
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ENCLOSURE I ENCLOSURE I

Slide 1

1

Navy and Marine Corps

Initiatives to Reduce Total

Ownership Cost

Briefing to

Subcommittee on Readiness and Management

Support

Senate Armed Services Committee

April 19, 2001

Slide 2

2

Background

• Congress directed DOD to develop a plan to streamline

DOD’s acquisition organization, workforce, and infrastructure.

• Each service designated 10 programs to develop

innovative approaches to reducing costs.

• Committee requested GAO evaluate pilot program

initiatives and results.
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ENCLOSURE I ENCLOSURE I

Slide 3

3

Background

• GAO Reports and Briefings

• Air Force Operating and Support Cost Reductions Need

Higher Priority (NSIAD-00-165); Higher Priority Needed

for Army Operating and Support Cost Reduction Efforts

(NSIAD-00-197); Briefings to the Committee, October and

December 2000.

• Air Force and Army do not establish operating and

support cost goals and manage to them.

• Air Force and Army have limited visibility of operating

and support costs.

• We recommended that the Air Force and Army

develop operating and support cost goals and track

progress toward achieving those goals.

Slide 4

4

Key Questions

• What initiatives have the Navy and Marine Corps proposed in

their pilot programs to reduce total ownership cost?

• What results have they obtained as a result of the initiatives?

• What factors limit operating and support cost reductions?
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ENCLOSURE I ENCLOSURE I

Slide 5

5

Navy and Marine Corps Pilot Programs

• Fielded Systems

• Standoff Land Attack Missile--Expanded Response

• H-60 Helicopter

• Aviation Support Equipment

• EA-6B

• CG-47 Class Aegis Cruiser

• CVN 68 Class Carrier

• Medium Tactical Vehicle Replacement

Slide 6

6

Navy and Marine Corps Pilot Programs

• Developmental Systems

• Advanced Amphibious Assault Vehicle

• LPD-17

• Other

• Common Ship

• Not one specific system, but a program to identify

initiatives that could be used on a variety of ships.
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ENCLOSURE I ENCLOSURE I

Slide 7

7

Navy and Marine Corps Common

Themes

• Pilots have different initiatives, but the initiatives had the

following themes in common:

• Reduce total cost of ownership

• Reduce manpower requirements

• Improve shipboard quality of life

• Improve responsiveness of the supply system

• Improve performance

• Reduce cyclical maintenance requirements

• Improve reliability

Slide 8

8

What Initiatives Have the Pilot Programs

Taken?

• Fielded systems

• Design: some changes can be made when systems are

available during overhaul or other times.

• Stern flap for the CG-47

• Logistics improvements

• Diagnostic equipment improvements

• Performance-based logistics contracts

• Rework maintenance requirements

• Repair or replace parts during regularly scheduled

maintenance, eliminate mid-life rebuilds

• Substitute components that need less maintenance
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ENCLOSURE I ENCLOSURE I

Slide 9

9

What Initiatives Have the Pilot Programs

Taken?

• Developmental systems: consider opportunities to

reduce cost of ownership while designing the system.

• Advanced Amphibious Assault Vehicle: special

contract provisions to encourage contractor to reduce

operating and support costs through design.

• LPD-17: corrosion-resistant materials

• Both fielded and developmental systems

• Buy smart

• Producibility studies

• Ordering sufficient quantities for efficient production

Slide 10

10

What Results Have the Pilots Obtained?

• DOD goal is to reduce costs by 20 percent in 2005.

• Operating and support costs for fielded systems; lifecycle costs for developmental systems

• According to DOD, 20 percent reduction is an overall

goal, not based on an analysis of what is possible in each

program.

• Baseline for programs is established.

• All programs report some progress toward reducing

ownership costs in fiscal year 2005.
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Slide 11

11

What Barriers Do Pilots Report?

• Funding Priority

• NAVSEA and NAVAIR tax programs and reinvest the

funds in projects, but funds can be and have been used

for other purposes.

• Small Business Innovation Research Funds applied for

and awarded to a number of programs--one-half of the

awards are for projects that reduce ownership cost.

• For ships, funding is programmed for mid-life overhaul,

but some improvements could be made at other times.

• Low Quantity/High Procurement Unit Cost paradigm.

• Data Reliability

• Data for operating and support costs not complete.

Slide 12

12

Individual Program Initiatives

• Standoff Land Attack Missile-Expanded Response

• Missile total ownership cost is not typical.

• Production is over 52 percent; O&S is 23 percent

• Initiatives

• Design--substantially reduced part count.

• Production--reduced missile lead time to 52 weeks,

establish more efficient production rate.

• Operating and support cost--reduced data link failure

rate by 90 percent through modification

• Results-- savings/cost avoidance in 2005 of $3.3 million or

about 29 percent.
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Slide 13

13

Individual Program Initiatives

• H-60 Helicopter Initiatives

• Implement Helicopter Master Plan--decrease number of

configurations

• Use remanufacture to increase reliability, maintainability,

and safety and decrease required maintenance.

• Improve repair response time through performance based

logistics support.

• Implement acquisition reforms such as retaining savings,

2-year funds, provide operating and maintenance funds

once a year.

• Results--for H-60 alone--about 3 percent or about $10 million.

Full implementation of Helicopter Master Plan could yield

20.3 percent or $156 million in fiscal year 2005.

Slide 14

14

Individual Program Initiatives

• Aviation Support Equipment Initiatives

• Replace legacy support equipment with the Consolidated

Automated Support system

• 25 equipment types to 1; reduced personnel from 105

to 54, reduced space on the carrier from 2700 to 1900

square feet, 624 publications reduced to 4 CDs

• Replace or upgrade common ground support equipment

• Implement Reliability Centered Maintenance Analysis on

support equipment.

• Results: savings/cost avoidance of $161million in fiscal year

2005--41 percent reduction.
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Slide 15

15

Individual Program Initiatives

• EA-6B Initiatives

• Reliability improvements to engine and navigation

• Replace components of weapons

• Reduce number of transmitters

• Upgrade aircraft

• Reduce configurations from 4 to 2 in fiscal year 2007

• Improve maintenance flow

• Use Integrated Maintenance Concept to define revised

intervals and maintenance levels for preventative

maintenance.

• Results: Savings/cost avoidance estimated at $15.8 million--

8.63 percent in fiscal year 2005.

Slide 16

16

Individual Program Initiatives

• CG-47 Class Aegis Cruiser Initiatives

• Integrated Ship Controls--automation of ship controls

• All Electric removes gas turbine generator, replaces with

all electric heaters and desalinators.

• Stern Flap reduces drag and fuel consumption.

• Wireless sensors network reduces crew workload by

sensing changes in environment, personnel, structure

and machinery.

• Advanced Food Service introduces commercial food

preparation techniques, equipment

• Results: Reduced crew workload, $62.3 million savings/cost

avoidance. Goal is $261million in fiscal year 2005.
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Slide 17

17

Individual Program Initiatives

• CVN--68 Class Carrier Initiatives

• Use ongoing programs such as Engineering for Reduced

Maintenance, Top Management Attention, Technology

Back Fit, Smart Carrier to develop initiatives.

Maintenance cost and crew workload targeted

• advanced paints and materials

• commercial-off-the-shelf incinerator

• Improved ACE Stanchion System

• Improved Processes--dry-docking every 12 years versus

every 6 years, cumbersome work practices analysis

• Results: Estimated savings/cost avoidance of $57.6 million

in 2005 for nine carriers.

Slide 18

18

Individual Program Initiatives

• Medium Tactical Vehicle Replacement

• Initiatives

• Design--better fuel usage, independent suspension,

on-board diagnostics, eliminate mid-life rebuild

• Buy at an efficient rate--7,000 trucks in 5 years

• Contractor logistics support

• Training simulators, maintenance simulators

• Results: Savings/cost avoidance of $20 million in fiscal year

2005.
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Slide 19

19

Individual Program Initiatives

• Advanced Amphibious Assault Vehicle Initiatives

• Operating and support cost considered in design:

contract provision allows contractor to recoup costs for

developing initiatives that reduce operating costs

• Employ open architecture, such as on 30-millimeter

gun

• Transmission, NBC filters, suspension, fire control

computer processor.

• Established threshold and objective baselines

• Identified cost avoidance from initiatives of $264K in

2005.

• Expected to be less costly to support than current

system

Slide 20

20

Individual Program Initiatives

• LPD-17 Initiatives

• Replacement system for 4 classes of ships

• Reduced manpower by 20 percent

• Managed ownership cost-reduction approach

• Identified tools, metrics, baseline allocated to

integrated product teams

• Goal: avoid costs through design.

• Implemented 96 initiatives

• Refrigeration plant, diesel generators

• Reduced anticipated maintenance by 25 percent.

• Results: Estimated reductions of $80 million in 2005. Life

cycle goal is 5.2 billion; $4.3 billion estimated to date.
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Slide 21

21

Individual Program Initiatives

• Common Ship

• Crosscutting program identifies hull, mechanical,

electrical improvements to reduce operating and support

costs, reduce workloads, improve quality of life aboard

ship, and improve readiness.

• Goal: reduce costs $68 million by 2005.

• Methodology: analyze what’s costing the most and

prioritize projects for return on investment.

• Projects include improved watertight doors, antistaining paint, corrosion resistant materials, and

insertion of new technologies.

• Result: $91 million cost avoidance by fiscal year 2005.

Slide 22

22

Observations

• The Navy and Marine Corps identified cost drivers and

successfully pursued a number of cost-reduction efforts

• Operating and support cost reductions are one of a

number of objectives that the Navy and Marine Corps

pursued. Other objectives include workload reduction,

performance improvement, quality-of-life improvements.

In making improvements to satisfy these objectives,

operating and support costs are lowered as well.

• Developmental systems such as AAAV and LPD-17 are

not pushing the envelope on technology, so some options

for lower operating and support cost will become

available.
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Slide 23

23

Observations

• The Navy and Marine Corps, like the other services, estimate

operating and support costs but have difficulty with the

reliability of data in tracking actual costs or using data to

establish baselines that programs could be held accountable

for as they are now accountable for growth in development

and production cost.

• Additional accountability could raise the priority of operating

and support costs and focus attention on them.

(120036)