United States Government Accountability Office

Washington, DC 20548 

December 15, 2005 

The Honorable John W. Warner 

Chairman 

The Honorable Carl Levin 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

Subject: Unmanned Aircraft Systems: Global Hawk Cost Increase 

Understated in Nunn-McCurdy Report

To provide for oversight of cost growth in DOD major defense acquisition 

programs, Congress passed legislation, commonly referred to as NunnMcCurdy, which requires DOD to notify Congress when a program’s unit 

cost growth exceeds (or breaches) the latest approved acquisition 

program baseline by at least 15 percent.1 If the cost growth has increased 

at least 25 percent over the baseline, the Secretary of Defense must certify 

to Congress that (1) the program is essential to national security; (2) no 

alternatives exist which will provide equal or greater military capability at 

less cost; (3) new program acquisition or procurement unit cost estimates 

are reasonable; and (4) the management structure is adequate to control 

unit cost. 

On April 13, 2005, the Acting Secretary of the Air Force formally notified 

Congress that the procurement unit cost of the Global Hawk had increased 

18 percent over the baseline estimate. As you requested, we are in the 

process of reviewing the acquisition strategies and requirements for 

 1

10 U.S.C. 2433 establishes the requirement for unit cost reports. The requirement became

permanent law in 1982 in Public Law 97-252, section 1107. Two measures are tracked: 

procurement unit cost (total funds programmed for procurement divided by the total 

number of fully configured items to be procured) and program acquisition unit cost (total 

cost of development, procurement, and system-specific military construction divided by

the number of fully configured end items to be produced). To eliminate the effects of 

inflation, costs are expressed in constant base year dollars. 

Page 1 GAO-06-222R Global Hawk Unit Cost Increases 
several unmanned aircraft systems,2

 including the Global Hawk. While that

work will not be completed for some months, we are issuing this 

correspondence because we have developed important information on the 

accuracy and completeness of the Air Force’s reporting of the Global 

Hawk unit cost increase that needs attention. 

The Air Force’s Nunn-McCurdy report to Congress understates the unit 

cost increase in that it does not include $400.6 million in known additional 

procurement costs.3

 Including these costs results in procurement unit cost

growth of 31 percent over the current baseline versus the 18 percent 

reported by the Air Force. In our view, this larger unit cost increase should 

have been reported to Congress with the required certification by the 

Secretary of Defense. The additional costs not included in the Air Force’s 

reporting are for the purchase and installation of sensors, enhancements 

to communications equipment and ground stations, parts procurement, 

and other items required to achieve the system’s initial, full-up capability. 

Air Force Global Hawk program budget documents included these costs 

before submitting the April 2005 Nunn-McCurdy notice to Congress and 

before the March 2005 publication of the annual Selected Acquisition 

Report.

4

 However, these costs were removed after the program office 

budget reporting documents were submitted to DOD offices in the 

Pentagon. Office of Secretary of Defense (OSD) officials explained that

these costs had been recategorized as modifications that have historically 

been excluded from baseline measurements. We believe these costs 

Summary 

 2

Rather than referring to unmanned aerial vehicles, we are adopting DOD’s new parlance of 

unmanned aircraft systems. DOD recently began changing its references to better reflect

that the air vehicle itself is part of a larger system (e.g. payloads, ground stations, and 

communication equipment) and to reflect the Federal Aviation Administration’s 

classification of unmanned vehicles as aircraft. 

3

This and other costs are expressed in terms of base year 2000 dollars to facilitate unit cost 

comparisons across years. The total cost expressed in then-year, budgeted dollars for items 

not included in the unit cost report is $487.6 million. 

4

For the purpose of congressional oversight and decision making, DOD is required by law

to report to Congress the unit costs for each major defense acquisition program. DOD

reports this unit cost for both the current budget estimate and the most recent acquisition 

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

program. DOD reports these comparisons in a Selected Acquisition Report. 10 U.S.C. 2432

establishes the requirements for these reports. Another statute, 10 U.S.C. 2433, establishes 

the requirement for unit cost reports. If certain program cost increase thresholds are

exceeded (known as unit cost or Nunn-McCurdy breaches), DOD is required to report to 

Congress and, if applicable, certify the program to Congress.

Page 2 GAO-06-222R Global Hawk Unit Cost Increases 
should have been reported since they are needed to achieve the system’s 

required capabilities. 

We are recommending that the Office of the Secretary of Defense revise 

the Global Hawk Selected Acquisition Report and take the necessary 

actions to comply with the Nunn-McCurdy legislation for reporting and 

certification.

The Air Force’s April 2005 letter to Congress stated that the 18-percent 

breach was primarily the result of increasing aircraft capacity to 

accommodate requirements for a more sophisticated, integrated imagery 

and signals intelligence sensor suite. This letter refers to the program 

restructuring of the Global Hawk program in 2002 that added a new, 

larger, and more capable aircraft (designated the RQ-4B). Before 2002, the 

Global Hawk program had planned to procure only the smaller version 

now designated the RQ-4A. The Air Force letter explains that the final 

design of the RQ-4B required more extensive changes to the fuselage, tail,

and landing gear than expected when the new, larger Global Hawk system

was baselined in 2002. The December 31, 2004, Selected Acquisition 

Report showed the reasons for unit cost increases as: 

• requirements growth, 

• increased sensor cost, 

• deferred aircraft purchases, 

• increased costs of airframe, 

• increased support requirements and initial spares, and 

• increased government costs for acceptance tests, design changes, and 

mission support. 

Additionally, program officials told us that they originally expected 

substantial commonality between the A and B models but, as designs were 

finalized and production started, it was apparent that the B model was 

more different, more complex, and more costly than anticipated. 

Program officials said the unreported costs ($400.6 million) are for items 

needed to bring the RQ-4B to a common configuration and to meet 

warfighter requirements. Such items as signals intelligence sensors and 

ground station enhancements will be retrofitted on aircraft and ground 

equipment after they have left the production line. Development and 

procurement cost increases and schedule slips have resulted in numerous 

adjustments to funding plans that included deferring some items to later in 

the program and reclassifying costs. For example, officials originally 

Reasons for NunnMcCurdy Cost Breach 

Costs Not Included in 

Global Hawk NunnMcCurdy Notice to 

Congress 

Page 3 GAO-06-222R Global Hawk Unit Cost Increases 
planned to procure 25 signals intelligence sensors and install them on the 

aircraft production line to meet the warfighter’s requirements for fully 

configured multi-intelligence aircraft. These costs were budgeted for last 

year in the aircraft procurement weapon system account and were 

included in the December 2002 acquisition program baseline. Because of 

cost pressures and schedule changes, officials moved the cost for 10 of 

these sensors—$122.6 million worth—to a different funding account used 

to modify aircraft after they are delivered. The new plan is to install these 

10 sensors in aircraft after they have left the production line. Because 

historical DOD practice does not include modifications in the program 

baseline, funding for these sensors and the other modification items were 

excluded for the Nunn-McCurdy reporting purposes. 

OSD officials responsible for the Selected Acquisition Reports told us, 

historically, modification costs have not been included in the calculations 

in these reports to Congress. This is because modification costs were 

typically used to add new capabilities or make changes after a fully 

capable weapon system had been delivered. However, in the case of the 

Global Hawk, the modification costs for the sensors and other items were

intended to deliver the full initial capability and, in our view, should have 

been included in the unit and total cost reporting to Congress. In response 

to our inquiry, OSD officials recently initiated a review of policies and 

practices to evaluate Global Hawk reporting and also to determine 

whether this issue affects other acquisition programs. OSD and Air Force 

officials said a factor contributing to uncertainty is that DOD policies and 

practices have been increasingly streamlined to provide less detailed 

guidance and may need to be updated to keep pace with new business 

practices such as evolutionary and spiral development. 

As shown in table 1, the impact of adding $400.6 million for modification 

costs would have resulted in a breach of 31 percent over baseline and

required the Secretary to certify the program to Congress. This additional 

cost would raise the average procurement cost for each aircraft to $74.8 

million compared with $57.0 million estimated in the December 2002 

baseline. We further note that adding modification costs would also result 

in a breach of program acquisition unit cost growth of almost 19 percent 

compared with the 11 percent reported in the Selected Acquisition Report. 

Page 4 GAO-06-222R Global Hawk Unit Cost Increases 
Table 1: Global Hawk Procurement Unit Cost (in millions of dollars) 

Baseline 

estimate 

(Dec 2002) 

Program 

estimate

(Mar 2005)

Percent change 

reported to 

Congress

Retrofit costs 

not reported

GAO estimate

including retrofit

costs 

Percent change, 

including retrofit

costs

Procurement Cost $2,904.6 $3,416.1 $400.6 $3,816.7

Quantity 51 51 51

Unit cost & Change $57.0 $67.0 18% $74.8 31%

Note: Costs expressed in base year 2000 dollars. 

Source: Air Force (data); GAO (analysis). 

The Air Force is in the midst of rebaselining the cost and schedule for 

acquiring the Global Hawk system. The Defense Acquisition Board is 

scheduled to review the new baseline in November 2005. This will be the 

program’s fourth baseline since the original baseline at system 

development start in March 2001. 

The Selected Acquisition Reports and unit cost reporting requirements are 

intended to inform Congress of the costs to develop and procure weapon 

systems and should accurately include all costs necessary to deliver the 

full capability stipulated in acquisition and requirements documents that 

support the business case for new weapon system development programs. 

The Global Hawk program does not meet this standard and therefore 

Congress does not have accurate and complete information about this 

program with which to make decisions on current and future budget

requests. 

We recommend that the Secretary of Defense direct the Under Secretary 

of Defense for Acquisition, Technology, and Logistics to revise the Global 

Hawk report and take the necessary actions to comply with the NunnMcCurdy legislation for reporting and certification. 

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

with our recommendation. DOD agreed that retrofit costs for the 10 

signals intelligence sensors and one radar sensor were previously in the 

approved baseline and should have been included in the unit cost 

reporting. Including these items would have increased unit costs by 22.5 

percent over the baseline versus the 18 percent reported to Congress and 

in the annual Selected Acquisition Report. DOD did not agree with us that 

funding for the other remaining modifications was also reportable, 

maintaining that these items meet the historical reporting practice for 

Conclusions 

Recommendations for 

Executive Action 

Agency Comments 

Page 5 GAO-06-222R Global Hawk Unit Cost Increases 
modifications to provide more performance capability than defined in the 

original approved acquisition program baseline. DOD’s written comments 

also said that OSD will review the Department’s acquisition reporting 

policies and practices and determine what changes, if any, are necessary 

to keep pace with new business practices such as evolutionary acquisition 

and will provide additional guidance to clarify current practices regarding 

weapon system modification and retrofit accounting. 

We continue to believe that Global Hawk unit procurement cost increase 

exceeds the 25-percent threshold established in law. Besides the costs for 

sensors and the radar, we believe other major modification costs identified 

in our report should have been included in unit cost reporting because 

they represent the cost to deliver capability originally agreed to in the 

acquisition program baseline. For example, other items not reported by 

DOD included $108 million in funding for technical solutions needed to 

meet required warfighter capabilities in the operational requirements 

document for communicating with ground forces. Furthermore, we 

understand that the Air Force plans to notify Congress that unit 

procurement costs for the Global Hawk program have increased over the 

25-percent threshold and will initiate the certification process required by 

Nunn-McCurdy. Finally, we are pleased that DOD plans to review 

acquisition and accounting policies and practices concerning

modifications to determine if changes are needed. We believe that keeping

policy and practice aligned will facilitate more accurate tracking and 

reporting and allow for greater oversight for major acquisition program 

baselines and unit costs over time. 

This report is the result of a broader ongoing review of the acquisition 

strategies being applied on Unmanned Aircraft Vehicle programs, 

including Global Hawk, Predator, and Joint Unmanned Combat Air 

Systems. To examine the accuracy and completeness of the Air Force’s 

Nunn-McCurdy report on Global Hawk, we obtained budget and 

programmatic data and compared changes in data from prior periods. This 

comparison showed that modification dollars were excluded in 

calculations used to prepare the final Nunn-McCurdy report and the 

annual Selected Acquisition Report. We discussed this analysis with Air 

Force Global Hawk program officials at Wright-Patterson Air Force Base, 

Ohio. We also discussed our analysis of Global Hawk and Nunn-McCurdy 

reporting and policy with officials of the Office of Secretary of Defense, 

Under Secretary for Acquisition, Technology, and Logistics. We discussed 

Global Hawk requirements with Air Combat Command officials at Langley 

Air Force Base, Virginia. We conducted our work from September through 

Scope and 

Methodology 

Page 6 GAO-06-222R Global Hawk Unit Cost Increases 
November 2005 in accordance with generally accepted government 

auditing standards. 

We are sending copies of this letter to the Honorable Donald H. Rumsfeld, 

Secretary of Defense, and Michael W. Wynne, Secretary of the Air Force. 

We will make copies available to other interested parties upon request. 

The letter is also available at no charge on the GAO Web site at 

http://www.gao.gov. 

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

Contact points for our offices of Congressional Relations and Public 

Affairs may be found on the last page of this report. Other major 

contributors to this letter were Mike Hazard, Assistant Director; Bruce 

Fairbairn; Rae Ann Sapp; and Charlie Shivers III. 

Sincerely yours, 

Michael J. Sullivan, Director 

Acquisition and Sourcing Management 

Enclosure 

Page 7 GAO-06-222R Global Hawk Unit Cost Increases 
Enclosure 

Page 8 GAO-06-222R Global Hawk Unit Cost Increases 

Enclosure 
Enclosure 

Page 9 GAO-06-222R Global Hawk Unit Cost Increases 
Enclosure 

(120498) Page 10 GAO-06-222R Global Hawk Unit Cost Increases 
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