Defense Acquisitions: Actions Needed to Get Better Results on Weapons Systems Investments
Published: 2006-04-05T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In the past 5 years, DOD has doubled its planned investments in weapons systems, but this huge increase has not been accompanied by more stability, better outcomes, or more buying power for the acquisition dollar. Rather than showing appreciable improvement, programs are experiencing recurring problems with cost overruns, missed deadlines, and performance shortfalls. GAO was asked to testify on ways to obtain a better return on DOD's weapons systems investments. This testimony identifies the following steps as needed to provide a better foundation for executing weapon programs: (1) developing a DOD-wide investment strategy that prioritizes programs based on realistic and credible threat-based customer needs for today and tomorrow, (2) enforcing existing policies on individual acquisitions and adhering to practices that assure new programs are executable, and (3) making it clear who is responsible for what and holding people accountable when these responsibilities are not fulfilled. Past GAO reports have made similar recommendations.
section_title: What GAO Found
paragraphs: DOD has a mandate to deliver high-quality products to warfighters, when they need them and at a price the country can afford. Quality and timeliness are especially critical to maintain DOD's superiority over others, to counter quickly changing threats, and to better protect and enable the warfighter. Cost is critical given DOD's stewardship responsibility for taxpayer money, combined with long-term budget forecasts which indicate that the nation will not be able to sustain its currently planned level of investment in weapons systems, and DOD's plans to increase investments in weapons systems that enable transformation of various military operations. At this time, however, DOD is simply not positioned to deliver high quality products in a timely and cost-efficient fashion. It is not unusual to see cost increases that add up to tens or hundreds of millions of dollars, schedule delays that add up to years, and large and expensive programs frequently rebaselined or even scrapped after years of failing to achieve promised capability. Recognizing this dilemma, DOD has tried to embrace best practices in its policies, and instill more discipline in requirements setting, among numerous other actions. Yet it still has trouble distinguishing wants from needs, and many programs are still running over cost and behind schedule. Our work shows that acquisition problems will likely persist until DOD provides a better foundation for buying the right things, the right way. This involves making tough tradeoff decisions as to which programs should be pursued, and more importantly, not pursued, making sure programs are executable, locking in requirements before programs are ever started, and making it clear who is responsible for what and holding people accountable when these responsibilities are not fulfilled. These changes will not be easy to make. They require DOD to re-examine the entirety of its acquisition process--what we think of as the "Big A"--including requirements setting, funding, and execution. Moreover, DOD will need to alter perceptions of what success means, and what is necessary to achieve success.

section_title: Letter
paragraphs: I am pleased to be here today to discuss how to get better results from the  Department of Defense’s (DOD) weapons systems investments and why  we must ensure that DOD be held accountable for doing so. DOD has a  mandate to deliver high-quality products to warfighters, when they need  them and at a price the country can afford. Quality and timeliness are  especially critical to maintain DOD’s superiority over others, to counter  quickly changing threats, and to better protect and enable the warfighter.  Cost is also critical given DOD’s stewardship over taxpayer money, long- term budget forecasts which indicate that the nation will not be able to  sustain its currently planned level of investment in weapons systems, and  plans to increase investments in weapons systems that enable  transformation of various military operations. At this time, however, DOD  is simply not positioned to deliver high quality products in a timely and  cost-efficient fashion. It is not unusual to see cost increases that add up to  tens or hundreds of millions of dollars, schedule delays that add up to  years, and large and expensive programs continually rebaselined or even  scrapped after years of failing to achieve promised capability.
Recognizing this dilemma, DOD has tried to embrace best practices in its  policies, instill more discipline in requirements setting, strengthen training  for program managers, reorganize offices that support and oversee  programs, and require the use of independent cost estimates and systems  engineering. Yet despite these and many other actions, the Department  still has trouble distinguishing wants from needs, and many programs are  still running over cost and behind schedule.
Our work shows that poor performance and cost overruns will likely  persist until DOD provides a better foundation for executing its weapons  programs. As I will further discuss today, this foundation includes   (1) a DOD-wide investment strategy that prioritizes programs based on  realistic and credible threat-based customer needs for today and  tomorrow (“Big A” acquisition); (2) enforcing existing policies on  individual acquisitions and adhering to practices that assure new programs  are executable (“little a” acquisition); and (3) making it clear who is  responsible for what and holding people accountable when these  responsibilities are not fulfilled. While such steps represent basic and  commonly accepted sound business practices, they will be extremely  difficult to implement within DOD, given the myriad of missions that  compete for the attention of DOD’s leadership and resources, frequent  turnover in leadership and key personnel, DOD’s intricate and outdated  organizational structure, outmoded and flawed supporting business  processes, as well as entrenched cultural behaviors and internal pressures.  As a result, solutions demand the highest levels of leadership attention and  commitment from DOD, the Administration, and the Congress over a  sustained period of years.
subsections: section_title: A Mandate for Change
paragraphs: Today we are at a key crossroad. In the next few decades, the nation will  be struggling with a large and growing structural deficit. At the same time,  however, weapons programs are commanding larger budgets as DOD  undertakes increasingly ambitious efforts to transform its ability to  address current and potential future conflicts. These costly current and  planned acquisitions are running head-on into the nation’s unsustainable  fiscal path. In the past 5 years, DOD has doubled its planned investments  in weapons systems, but this huge increase has not been accompanied by  more stability, better outcomes, or more buying power for the acquisition  dollar. Rather than showing appreciable improvement, programs are  experiencing recurring problems with cost overruns, missed deadlines,  and performance shortfalls.
subsections: section_title: Dollars Available for Weapons Will Face Serious Budget Pressures
paragraphs: As I have testified previously, our nation is on an imprudent and  unsustainable fiscal path. Budget simulations by GAO, the Congressional  Budget Office, and others show that, over the long term, we face a large  and growing structural deficit due primarily to known demographic  trends, rising health care costs, and lower federal revenues as a  percentage of the economy. Continuing on this path will gradually erode, if  not suddenly damage, our economy, our standard of living, and ultimately  our national security. Federal discretionary spending, along with other  federal policies and programs, will face serious budget pressures in the  coming years stemming from new budgetary demands and demographic  trends. Defense spending falls within the discretionary spending accounts.  Further, current military operations, such as those in Afghanistan and Iraq,  consume a large share of DOD budgets and are causing faster wear on  existing weapons. Refurbishment or replacement sooner than planned is  putting further pressure on DOD’s investment accounts.
It is within this context that we must engage in a comprehensive and  fundamental reexamination of new and ongoing investments in our  nation’s weapons systems. Weapons systems are one of the single largest  investments the federal government makes. In the last 5 years, DOD has  doubled its planned investments in new systems from about $700 billion in  2001 to nearly $1.4 trillion in 2006. Annual procurement totals are  expected by DOD to increase from about $75 billion to about $100 billion  during 2006 to 2011.
section_title: Programs Are Seeking Larger Budgets
paragraphs: At the same time DOD is facing future budget constraints, programs are  seeking larger budgets. To illustrate, the projected cost of DOD’s top five  programs in fiscal year 2001 was about $291 billion. In 2006, it was   $550 billion. A primary reason why budgets are growing is that DOD is  undertaking new efforts that are expected to be the most expensive and  complex ever. Moreover, it is counting on these efforts to enable  transformation of military operations. The Army, for example, is  undertaking the Future Combat Systems (FCS) program in order to enable  its combat force to become lighter, more agile, and more capable. FCS is  comprised of a family of weapons, including 18 manned and unmanned  ground vehicles, air vehicles, sensors, and munitions, which will be linked  by an information network. These vehicles, weapons, and equipment will  comprise the majority of the equipment needed for a brigade combat team  in the future. When considering complementary programs, projected  investment costs for FCS are estimated on the order of $200 billion.  Affordability of the FCS programs depends on two key assumptions. First,  the program must proceed without exceeding its currently projected costs.  Second, FCS has expected large annual procurement costs beginning in  2012. FCS procurement will represent 60 to 70 percent of Army  procurement from fiscal years 2014 to 2022. As the Army prepares the next  Defense Plan, it will face the challenge of allocating sufficient funding to  meet increasing needs for FCS procurement in fiscal years 2012 and 2013.  If all the needed funding cannot be identified, the Army will have to  consider reducing the FCS procurement rate or delaying or reducing items  to be spun out to current Army forces.
At the same time, the Air Force is undertaking two new satellite programs  that are expected to play a major role in enabling FCS and other future  systems. The Transformational Satellite Communications System, which is  to serve as a linchpin in DOD’s future communications network, and  Space Radar, which is focused on generating volumes of radar imagery  data for transmission to ground-, air-, ship-, and space-based systems.  Together, these systems are expected to cost more than $40 billion. The  Department has also been focused on modernizing its tactical aircraft  fleet. These efforts include the Joint Strike Fighter (JSF) aircraft program,  currently expected to cost more than $200 billion, and the Air Force’s   F-22A Raptor aircraft, expected to cost more than $65 billion.
Concurrently, the Navy is focused on acquiring new ships and submarines  with significantly advanced designs and technologies. These include the  Virginia Class Submarine, expected to cost about $80 billion, and the DDG- 51 class destroyer ship, expected to cost some $70 billion, and the newer  DD(X) destroyer program, which is focused on providing advanced land  attack capability in support of forces ashore and to contribute to U.S.  military dominance in the shallow coastal water environment. The Navy  shipbuilding plan requires more funds than may reasonably be expected.  Specifically, the plan projects a supply of shipbuilding funds that will  double by 2011 and will stay at high levels for years to follow.
section_title: Problematic Acquisitions Continue to Reduce DOD’s Buying Power
paragraphs: Despite doubling its investment the past 5 years, our assessments do not  show appreciable improvement in DOD’s management of the acquisition  of major weapons systems. A large number of the programs included in  our annual assessment of weapons systems are costing more and taking  longer to develop than estimated. It is not unusual to see development cost  increases between 30 percent and 40 percent and schedule delays of  approximately 1, 2 or more years.
The consequence of cost and cycle-time growth is manifested in a  reduction of buying power of the defense dollar—causing programs to  either cut back on planned quantities, capabilities, or to even scrap multi- billion dollar programs, after years of effort, in favor of pursing more  promising alternatives. Figure 1 illustrates seven programs with a  significant reduction in buying power; we have reported similar outcomes  in many more programs. This is not to say that the nation does not get  superior weapons in the end, but that at currently projected twice the level  of investment, DOD has an obligation to get better results.
Furthermore, the conventional acquisition process is not agile enough to  meet today’s demands. Congress has expressed concern that urgent  warfighting requirements are not being met in the most expeditious  manner and has put in place several authorities for rapid acquisition to  work around the process. The U.S. Joint Forces Command’s Limited  Acquisition Authority and the Secretary of Defense’s Rapid Acquisition  Authority seek to get warfighting capability to the field quicker. According  to U.S. Joint Forces Command officials, it is only through Limited  Acquisition Authority that the command has had the authority to satisfy  the unanticipated, unbudgeted, urgent mission needs of other combatant  commands. With a formal process that requires as many as 5, 10, or   15 years to get from program start to production, such experiments are  needed to meet the warfighters’ needs.
section_title: Underlying Causes of Acquisition Problems
paragraphs: Our reviews have identified a number of causes behind the problems just  described, but several stand out. First, DOD starts more weapons  programs than it can afford and sustain, creating a competition for funding  that encourages low cost estimating, optimistic scheduling, over  promising, and suppressing of bad news. Programs focus on advocacy at  the expense of realism and sound management. Invariably, with too many  programs in its portfolio, DOD and the Congress are forced to continually  shift funds to and from programs—undermining well-performing programs  to pay for poorly performing ones. Adding pressure to this environment  are changes that have occurred within the defense supplier base. Twenty  years ago, there were more than 20 fully competent prime contractors  competing for multiple new programs annually; today, there are only 6 that  compete for considerably fewer programs, according to a recent DOD- commissioned study. This adds pressure on DOD to keep current suppliers  in business and limits DOD’s ability to maximize competition.
Second, DOD has exacerbated this problem by not clearly defining and  stabilizing requirements before programs are started. At times, in fact, it  has allowed new requirements to be added well into acquisition cycle— significantly stretching technology and creating design challenges, and  exacerbating budget overruns. For example, in the F-22A program, the Air  Force added a requirement for air-to-ground attack capability. In its Global  Hawk program, the Air Force added both signals intelligence and imagery  intelligence requirements. While experience would caution DOD not to  pile on new requirements, customers often demand them fearing there  may not be another chance to get new capabilities since programs can  take a decade or longer to complete. Yet, perversely, such strategies delay  delivery to the warfighter, oftentimes by years.
Third, DOD commits to its programs before it obtains assurance that the  capabilities it is pursuing can be achieved within available resources and  time constraints. Funding processes encourage this approach, since  acquisition programs attract more dollars than efforts concentrating solely  on proving out technologies. Nevertheless, when DOD chooses to extend  technology invention into acquisition, programs experience technical  problems that have reverberating effects and require large amounts of time  and money to fix. When programs have a large number of  interdependencies, even minor technical “glitches” can cause disruptions.  Only 10 percent of the programs in our latest annual assessment of  weapons systems had demonstrated critical technologies to best practice  standards at the start of development; and only 23 percent demonstrated  them to DOD’s standards. The cost effect of proceeding without  completing technology development before starting an acquisition can be  dramatic. For example, research, development, test and evaluation costs  for the programs included in our review that met best practice standards  at program start increased by a modest average of 4.8 percent over the  first full estimate, whereas the costs for the programs that did not meet  these standards increased by a much higher average of 34.9 percent over  the first full estimate.
Fourth, officials are rarely held accountable when programs go astray.  There are several reasons for this, but the primary ones include the fact  that DOD has never clearly specified who is accountable for what,  invested responsibility for execution in any single individual, or even  required program leaders to stay until the job is done. Moreover, program  managers are not empowered to make go or no-go decisions, they have  little control over funding, they cannot veto new requirements, and they  have little authority over staffing. Because there is frequent turnover in  their positions, program managers also sometimes find themselves in the  position of having to take on efforts that are already significantly flawed.
Likewise, contractors are not always held accountable when they fail to  achieve desired acquisition outcomes. In a recent study, for example, we  found that DOD had paid out an estimated $8 billion in award fees on  contracts in our study population regardless of outcomes. In one instance,  we found that DOD paid its contractor for a satellite program—the Space- Based Infrared System High—74 percent of the award fee available, or  $160 million, even though research and development costs increased by  more than 99 percent, the program was delayed for many years and was  rebaselined three times. In another instance, DOD paid its contractor for  the F-22A aircraft more than $848 million, 91 percent of the available  award fee, even though research and development costs increased by  more than 47 percent, the program has been rebaselined 14 times, and  delayed by more than 2 years.
Fifth, these strategies work, because they win dollars. DOD and  congressional funding approval reinforces these practices and serves to  undercut reform efforts. Stated differently, typically no one is held  accountable for unacceptable outcomes and there are little or no adverse  consequences for the responsible parties. This is a shared responsibility of  both the executive and legislative branches of government.
Of course, there are many other factors that play a role in causing  weapons programs to go astray. They include workforce challenges, poor  contractor oversight, frequent turnover in key leadership, and a lack of  systems engineering, among others. Moreover, many of the business  processes that support weapons development—strategic planning and  budgeting, human capital management, infrastructure, financial  management, information technology, and contracting—are beset with  pervasive, decades-old management problems, including outdated  organizational structures, systems, and processes. In fact, these areas— along with weapons system acquisitions—are on GAO’s high risk list of  major government programs and operations.
DOD has long recognized such problems and initiated numerous  improvement efforts. In fact, since 1949, more than 10 commissions have  studied issues such as long cycle time and cost increases as well as  deficiencies in the acquisition workforce. This committee just last week  heard testimony regarding several of them. Among these recent studies,  there is a consensus that DOD needs to instill much stronger discipline  into the requirements setting process, prioritize its investments, seek  additional experienced and capable managers, control costs, strengthen  accountability, and enhance the basis for enterprise-wide decision making.
In response to past studies and recommendations, including our own,  DOD has taken a number of acquisition reforms. Specifically, DOD has  restructured its acquisition policy to incorporate best practices as the  suggested way of doing business. For example, policies embrace the  concept of closing gaps between requirements and resources before  launching new programs. DOD is also reviewing changes to requirements  setting. DOD has also strengthened training for program managers,  required the use of independent cost estimating, reemphasized the  discipline of systems engineering, and tried extracting better performance  from contractors—by alternately increasing and relaxing oversight.
While all of these steps are well-intentioned, recent policy statements,  such as the Quadrennial Defense Review (QDR), and decisions on  individual programs have fallen far short of the needed fundamental  review reassessment, repriortization and reengineering efforts. For  example, the Office of the Secretary of Defense (OSD) does not seem to be  pushing for dramatic and fundamental reforms in its acquisition process.  In fact, it has either disagreed with recommendations we have made over  the past year or claimed that it was already addressing them. These  include reports on specific systems such as JSF, the Missile Defense  program, FCS, and Global Hawk as well as reports on cross-cutting issues,  such as DOD’s rebaselining practices, acquisition policy, and support for  program managers. We believe DOD’s recently issued QDR did not lay out  a long term, resource constrained, investment strategy. In fact, the gap  between wants, needs, affordability and sustainability seems to be greater  than ever.
section_title: Solutions
paragraphs: Our work shows that acquisition problems will likely persist until DOD  provides a better foundation for buying the right things, the right way. This  involves making tough tradeoff decisions as to which programs should be  pursued, and more importantly, not pursued, making sure programs are  executable, locking in requirements before programs are ever started, and  making it clear who is responsible for what and holding people  accountable when these responsibilities are not fulfilled. These changes  will not be easy to make. They require DOD to reexamine the entirety of  its acquisition process—what we think of as the “Big A”. This includes  making deep-seated changes to program requirements setting, funding,  and execution. It also involves changing how DOD views success, and  what is necessary to achieve success.
subsections: section_title: Buy the Right Thing: Develop and Implement an Investment Strategy
paragraphs: The first, and most important, step is implementing a revised DOD-wide  investment strategy for weapons systems. In a recent study on program  management best practices, we recommended that DOD determine the  priority order of needed capabilities based on assessments of the  resources—that is dollars, technologies, time, and people needed to  achieve these capabilities. We also recommended that capabilities not  designated as a priority should be set out separately as desirable but not  funded unless resources were both available and sustainable.
DOD’s Under Secretary of Defense for Acquisition Technology and  Logistics—DOD’s corporate leader for acquisition—should develop this  strategy in concert with other senior leaders, for example, combatant  commanders who would provide input on user needs; DOD’s comptroller;  science and technology leaders, who would provide input on available  resources; and acquisition executives from the military services, who  could propose solutions. Finally, once priority decisions are made,  Congress will need to enforce discipline through various authorization and  appropriation decisions.
section_title: Buy the Right Way: Ensure Individual Programs Are Executable
paragraphs: Once DOD has prioritized capabilities, it should work vigorously to make  sure each new program is executable before the acquisition begins. This is  the “little a.” More specifically, this means assuring requirements are  clearly defined and achievable given available resources and that all  alternatives have been considered. System requirements should be agreed  to by Service Acquisition Executives as well as Combatant Commanders.  Once programs begin, requirements should not change without assessing  their potential disruption to the program and assuring that they can be  accommodated within time and funding constraints. In addition, DOD  should prove that technologies can work as intended before including  them in acquisition programs. This generally requires a prototype to be  tested in an operational environment. More ambitious technology  development efforts should be assigned to the science and technology  community until they are ready to be added to future generations of the  product. DOD should also require the use of independent cost estimates as  a basis for budgeting funds. Our work over the past 10 years has  consistently shown when these basic steps are taken, programs are better  positioned to be executed within cost and schedule.
To further ensure that programs are executable, DOD should pursue an  evolutionary path toward meeting user needs rather than attempting to  satisfy all needs in a single step. This approach has been consistently used  by successful commercial companies we have visited over the past decade  because it provides program managers with more achievable  requirements, which, in turn, would facilitate shorter cycle times. With  shorter cycle times, the companies we have studied have also been able to  assure that program managers and senior leaders stay with programs  throughout the duration of a program. DOD has policies that encourage  evolutionary development, but programs often favor pursuing more exotic  solutions that will attract funds and support.
Lastly, to keep programs executable, DOD should demand that all go/no- go decisions be based on quantifiable data and demonstrable knowledge.  These data should cover critical program facets such as cost, schedule,  technology readiness, design readiness, production readiness, and  relationships with suppliers. Development should not be allowed to  proceed until certain thresholds are met, for example, a high percentage of  engineering drawings completed at critical design review. DOD’s current  policies encourage these sorts of metrics to be used as a basis for decision  making, but they do not demand it. DOD should also place boundaries on  time allowed for specific phases of development and production.
section_title: Hold People Accountable
paragraphs: To strengthen accountability, DOD will need to clearly delineate  responsibilities among those who have a role in deciding what to buy as  well as those who have role in executing, revising, and terminating  programs. Within this context, rewards and incentives will need to be  altered so that success can be viewed as delivering needed capability at  the right price and the right time, rather than attracting and retaining  support for numerous new and ongoing programs. After all, given our  current and projected fiscal imbalances, every dollar spent on a want  today may not be available for an important need tomorrow. To enable  accountability to be exercised at the program level, DOD will also need to  (1) match program manager tenure with development or the delivery of a  product;( 2) tailor career paths and performance management systems to  incentivize longer tenures; (3) strengthen training and career paths as  needed to ensure program managers have the right qualifications for run  the programs they are assigned to; (4) empower program managers to  execute their programs, including an examination of whether and how  much additional authority can be provided over funding, staffing, and  approving requirements proposed after the start of a program; and (5)  develop and provide automated tools to enhance management and  oversight as well as to reduce the time required to prepare status  information.
DOD also should hold contractors accountable for results. As we have  recently recommended, this means structuring contracts so that incentives  actually motivate contractors to achieve desired acquisition outcomes and  withholding award fees when those goals are not met. In addition, DOD  should collect data that will enable it to continually assess its progress in  this regard.
In closing, the past year has seen several defense reviews that include new  proposed approaches to improve the way DOD buys weapons. These  reviews contain many constructive ideas. If they are to produce better  results, however, they must heed the lessons taught—but perhaps not  learned—by acquisition history. Specifically, DOD must separate needs  from wants in the context of the nation’s greater fiscal challenges. Policy  must also be manifested in decisions on individual programs or reform will  be blunted. DOD’s current acquisition policy is a case in point. The policy  supports a knowledge-based, evolutionary approach to acquiring new  weapons. The practice—decisions made on individual programs— sacrifices knowledge and executability in favor of revolutionary solutions.  It’s time to challenge such solutions. Reform will not be real unless each  weapons system is shown to be both a worthwhile investment and an  executable program. Otherwise, we will continue to start more programs  than we can finish, produce less capability for more money, and create the  next set of case studies for future defense reform reviews.
Mr. Chairman and Members of the Committee, this concludes my  statement. I will be happy to take any questions.
section_title: Scope and Methodology
paragraphs: In preparing for this testimony, we relied on previously issued GAO  reports and analyzed recent acquisition reform studies from various  organizations. We conducted our review between March 20 and   April 5, 2006, in accordance with generally accepted government   auditing standards.
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