1 GAO-14-522R B-2 DMS-M Prototyping Waiver

441 G St. N.W.

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April 22, 2014

Congressional Committees

Department of Defense’s Waiver of Competitive Prototyping Requirement for the Air 

Force’s B-2 Defensive Management System Modernization Program

The Weapon Systems Acquisition Reform Act of 2009, as amended (WSARA), requires the 

Secretary of Defense to modify guidance to ensure that the acquisition strategy for each major 

defense acquisition program provides for competitive prototypes before Milestone B approval—

which authorizes entry into system development—unless the Milestone Decision Authority 

waives the requirement.1 Competitive prototyping, which involves commercial, government, or 

academic sources producing early prototypes of weapon systems or critical subsystems, can 

help Department of Defense (DOD) programs reduce technical risk, refine requirements, 

validate designs and cost estimates, and evaluate manufacturing processes prior to making 

major commitments of resources. It can also help reduce the time it takes to field a system, and 

as a result, reduce its acquisition cost. WSARA states that the Milestone Decision Authority may 

waive the competitive prototyping requirement only on the basis that (1) the cost of producing 

competitive prototypes exceeds the expected life-cycle benefits (in constant dollars) of 

producing such prototypes, including the benefits of improved performance and increased 

technological and design maturity that may be achieved through competitive prototyping; or (2)

but for such a waiver, DOD would be unable to meet critical national security objectives.

WSARA also provides that whenever a Milestone Decision Authority authorizes a waiver of the 

competitive prototyping requirement on the basis of what WSARA describes as “excessive 

cost,” the Milestone Decision Authority is required to submit notification of the waiver, together 

with the rationale, to the Comptroller General of the United States at the same time it is 

submitted to the congressional defense committees. WSARA further provides that no later than 

60 days after receipt of a notification of a waiver, we are mandated to review the rationale for 

the waiver and submit a written assessment of that rationale to the congressional defense 

committees.

2

 

1

Pub. L. No. 111-23, § 203(a), as amended by the Ike Skelton National Defense Authorization Act for Fiscal Year 

2011, Pub. L. No. 111-383, § 813. DOD modified its guidance related to the operation of its acquisition system 

through Directive-Type Memorandum (DTM) 09-027, “Implementation of Weapon Systems Acquisition Reform Act of 

2009,” (Dec. 4, 2009, incorporating Change 4, Jan. 11, 2013). This DTM also defined major defense acquisition 

programs as those estimated by DOD to require an eventual total expenditure for research, development, test, and 

evaluation or for procurement--including all planned increments--of more than $365 million or more than $2.19 billion, 

respectively, in fiscal year 2000 constant dollars. DOD issued an Interim Instruction 5000.02, “Operation of the 

Defense Acquisition System,” on November 25, 2013 which cancelled DTM 09-027 and modified the thresholds for 

major defense acquisition programs. However for purposes of this report we used DTM 09-027 because the 

competitive prototyping waiver for the B-2 Defensive Management System Modernization program was completed 

prior to issuance of the Interim DOD Instruction. The Milestone Decision Authority for major defense acquisition 

programs is the Under Secretary of Defense for Acquisition, Technology, and Logistics; the head of a DOD 

component; or, if delegated, the component acquisition executive.

2

Pub. L. No. 111-23, § 203(b)(1) & (2). 
2 GAO-14-522R B-2 DMS-M Prototyping Waiver

On December 3, 2013, we received notice from DOD that it had waived the competitive 

prototyping requirement for the Air Force’s B-2 Defensive Management System Modernization

(DMS-M) program. The Air Force’s B-2 bomber is a low-observable, long-range strike aircraft 

capable of entering heavily defended areas to deliver both conventional and nuclear weapons.

The defensive management system detects, identifies, and locates enemy radar systems and 

provides real-time threat avoidance, threat warning, and threat situational awareness 

information to the aircrew. The DMS-M program is expected to upgrade the aircraft's analog 

defensive management system to a digital capability, update pilot displays, enhance the in-flight 

capability to avoid unanticipated air defense threats, and improve frequency coverage and the 

reliability and maintainability of the system. The DMS-M consists of three critical subsystems—

antenna, electronic support measures, and avionics and graphics processors—that will be 

integrated onto existing B-2 aircraft. The program is in the second of two technology 

development phases and plans to gain approval to enter system development in late fiscal year 

2015.

In this report, we assess DOD’s rationale for waiving the competitive prototyping requirement for 

the B-2 DMS-M program and the analysis used to support it. To conduct our assessment, we 

compared the rationale in the waiver to the WSARA requirement to determine the extent to 

which the waiver is consistent with the statute. In addition, we reviewed the Air Force’s costbenefit analysis, which provides the data and assumptions on which the waiver is based, the 

technology development strategy, and other relevant documentation. We did not independently 

verify the Air Force’s data on cost and benefits. We also submitted written questions to B-2 

program officials to clarify information in program documentation, as necessary. 

We conducted this performance audit from March 2014 to April 2014 in accordance with 

generally accepted government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on our audit objectives.

Results in Brief

DOD’s rationale for waiving WSARA’s competitive prototyping requirement for the B-2 DMS-M 

program addresses one of the two bases provided in the statute; namely that the cost of 

producing competitive prototypes exceeds the expected life-cycle benefits (in constant dollars) 

of producing the prototypes. The Air Force’s B-2 DMS-M program is well into technology 

development and according to the cost-benefit analysis supporting the waiver, there is little 

opportunity to gain significant cost savings by prototyping. According to the Air Force, the prime 

contractor has already held competitions and selected suppliers that will leverage existing, 

technically mature subsystems for two of three DMS-M critical subsystems. The prime 

contractor has also conducted competitive prototyping for antennas, which are not yet 

technically mature, to reduce technical, cost, and schedule risk. In its cost-benefit analysis, the 

Air Force concluded that it will achieve significant operations and support cost reductions 

through its strategy of leveraging existing subsystems for the DMS-M and any additional 

improvements from prototyping would be on the margins. In the waiver, DOD concluded that the 

Air Force’s prototyping cost-benefit analysis was reasonable. We also found that the Air Force’s 

cost-benefit analysis was consistent with key principles in DOD’s policy on economic analysis, 

which states that each feasible alternative for meeting an objective must be considered and its 
3 GAO-14-522R B-2 DMS-M Prototyping Waiver

life-cycle costs and benefits evaluated.3 The Air Force analysis examined four different 

scenarios including the system- and subsystem-level prototyping options outlined in WSARA 

and DOD’s implementing guidance. The Air Force concluded these strategies would increase 

the program’s development costs by between $28.2 million and $524.8 million (in base year 

2011 dollars) depending on the type and number of prototypes. The Air Force also estimated 

that the various prototyping strategies could achieve an estimated $1.3 million to $6.3 million (in 

base year 2011 dollars) in life-cycle benefits by improving the reliability of the system or key 

subsystems.

Waiver Rationale Is Consistent with WSARA and the Supporting Analysis Considered a 

Reasonable Set of Prototyping Alternatives

DOD’s rationale for waiving WSARA’s competitive prototyping requirement for the B-2 DMS-M 

program addressed one of the two bases provided for a waiver in the statute, namely that the 

cost of producing competitive prototypes exceeds the expected life-cycle benefits, including the 

benefits of improved performance and increased technological and design maturity that may be 

achieved through competitive prototyping. The Air Force’s B-2 DMS-M program is well into 

technology development and according to the cost benefit analysis supporting the waiver, there 

is little opportunity to gain significant cost savings by prototyping. During technology 

development, the prime contractor Northrop Grumman held competitions and selected suppliers 

for critical DMS-M subsystems. According to the Air Force, the chosen suppliers for the 

electronic support measures and avionics and graphics processors subsystems will leverage 

existing, technically mature subsystems and will also produce single prototypes of these 

subsystems during technology development. During technology development, the prime 

contractor also conducted competitive prototyping for B-2 DMS-M antennas, which are not yet 

technically mature, to reduce technical, cost, and schedule risk. According to the Air Force, 

there were four competitive prototypes produced for one part of the antenna subsystem and 

three competitive prototypes produced for the other part. In its cost-benefit analysis, the Air 

Force concluded that its strategy of leveraging existing subsystems for the DMS-M will achieve 

a 47 percent or $155.8 million (in base year 2011 dollars) reduction in operations and support 

costs over the current system and any additional improvements from prototyping would be on 

the margins. We also noted that the Air Force plans to use a cost-type contract for system 

development, which, according to DOD acquisition regulations, requires a written determination 

by the Milestone Decision Authority that a program is so complex and technically challenging 

that it would not be practicable to reduce program risk to a level that would permit the use of a 

fixed-price type contract.4

 The Air Force recommended a cost-type contract because of 

uncertainty related to software development, system integration, testing, and potential funding 

volatility.

In the waiver, DOD found reasonable the Air Force’s cost-benefit analysis, which examined 

multiple prototyping strategies including system- and subsystem-level prototyping. The Air 

Force’s cost-benefit approach was consistent with key principles in DOD’s policy on economic 

analysis, which states that each feasible alternative for meeting an objective must be 

 

3

DOD Instruction 7041.3, Economic Analysis for Decisionmaking, Encl. 3, para. E3.1.1. (Nov. 7, 1995).

4

Defense Federal Acquisition Regulation Supplement § 234.004(2)(i)(C)(1) . Cost-reimbursement contracts, also 

known as cost-type contracts, provide for payment of allowable incurred costs, to the extent prescribed in the 

contract. This contract type places most of the risk on the government, which may pay more than budgeted should 

incurred costs be more than expected when the contract is signed.
4 GAO-14-522R B-2 DMS-M Prototyping Waiver

considered and its life-cycle costs and benefits evaluated.5 In all, the Air Force examined four 

different scenarios, including the system- and subsystem-level prototyping options outlined in 

WSARA and DOD’s implementing guidance, and compared the life-cycle cost of each 

prototyping scenario to the potential life-cycle benefits. The Air Force concluded these 

strategies would increase the program’s development costs by between $28.2 million to $524.8

million (in base year 2011 dollars) depending on the type and number of prototypes. The Air 

Force’s prototyping cost estimates were based primarily on the actual and planned cost of the 

program’s two technology development phases. For example, the Air Force assumed a second 

contractor would need to develop a DMS-M system prototype at the same cost as Northrop 

Grumman’s system delivered during technology development. In addition, the system-level 

competitive prototyping scenario included $54 million for data rights because access to 

proprietary Northrop Grumman data is needed to act as the system integrator for B-2 related 

efforts. According to the Air Force, this estimate was developed using historic cost estimating 

factors. In practice, Northrop Grumman is unwilling to provide a price to the government for the 

data, so this prototyping scenario might not be feasible. The Air Force also estimated that the

various prototyping strategies could achieve an estimated $1.3 million to $6.3 million (in base 

year 2011 dollars) in life-cycle benefits by improving the reliability of the system or key 

subsystems. According to the Air Force, it also considered the positive impacts of prototyping 

with respect to integration and production costs, but it did not include a dollar value for these

benefits in any of its prototyping scenarios.

 

5

DOD Instruction 7041.3, Economic Analysis for Decisionmaking, Encl. 3, para. E3.1.1. (Nov. 7, 1995).
5 GAO-14-522R B-2 DMS-M Prototyping Waiver

Agency Comments and Our Evaluation

We provided a draft of this report to DOD for comment. In response, DOD stated that it had no 

comments. 

- - - - - - 

We are sending copies of this report to interested congressional committees, the Secretary of 

Defense and the Secretary of the Air Force. In addition, the report will be available at no charge 

on the GAO website at http://www.gao.gov. 

If you or your staff have any questions, please contact me at (202) 512-4841 or 

sullivanm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs 

may be found on the last page of this report. GAO staff who made key contributions to this 

report were Ron Schwenn, Assistant Director; Kristine Hassinger; Matthew B. Lea; Kenneth E. 

Patton; Carol D. Petersen; and Don M. Springman. 

Michael J. Sullivan

Director, Acquisition and Sourcing Management
6 GAO-14-522R B-2 DMS-M Prototyping Waiver

List of Committees

The Honorable Carl Levin

Chairman

The Honorable James M. Inhofe

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Richard J. Durbin

Chairman

The Honorable Thad Cochran

Ranking Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Howard P. “Buck” McKeon

Chairman

The Honorable Adam Smith

Ranking Member

Committee on Armed Services

House of Representatives

The Honorable Rodney Frelinghuysen

Chairman

The Honorable Pete Visclosky

Ranking Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives

121207
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