Defense Management: DOD Needs Better Information and Guidance to More Effectively Manage and Reduce Operating and Support Costs of Major Weapon Systems
Published: 2010-07-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) spends billions of dollars each year to sustain its weapon systems. These operating and support (O&S) costs can account for a significant portion of a system's total life-cycle costs and include costs for repair parts, maintenance, and personnel. The Weapon Systems Acquisition Reform Act of 2009 directs GAO to review the growth in O&S costs of major systems. GAO's report addresses (1) the extent to which life-cycle O&S cost estimates developed during acquisition and actual O&S costs are available for program management and decision making; (2) the extent to which DOD uses life-cycle O&S cost estimates after systems are fielded to quantify cost growth and identify its causes; and (3) the efforts taken by DOD to reduce O&S costs for major systems. GAO selected seven aviation systems that reflected varied characteristics and have been fielded at least several years. These systems were the F/A-18E/F, F-22A, B-1B, F-15E, AH-64D, CH-47D, and UH-60L.
section_title: What GAO Found
paragraphs: DOD lacks key information needed to effectively manage and reduce O&S costs for most of the weapon systems GAO reviewed--including life-cycle O&S cost estimates and complete historical data on actual O&S costs. The services did not have life-cycle O&S cost estimates developed at the production milestone for five of the seven aviation systems GAO reviewed, and current DOD acquisition and cost-estimating guidance does not specifically address retaining these estimates. Also, the services' information systems designated for collecting data on actual O&S costs were incomplete, with the Army's system having the greatest limitations on available cost data. without historic cost estimates and complete data on actual O&S costs, DOD officials do not have important information necessary for analyzing the rate of O&S cost growth for major systems, identifying cost drivers, and developing plans for managing and controlling these costs. At a time when the nation faces fiscal challenges, and defense budgets may become tighter, the lack of this key information hinders sound weapon system program management and decision making in an area of high costs to the federal government. DOD generally does not use updated life-cycle O&S cost estimates to quantify cost growth and identify cost drivers for the systems GAO reviewed. The services did not periodically update life-cycle O&S cost estimates after production was completed for six of the seven systems. The F-22A program office had developed an updated life-cycle O&S cost estimate in 2009 and found a 47-percent ($19 billion) increase in life-cycle O&S costs from what had been previously estimated in 2005. GAO's comparisons of estimated to actual O&S costs for two of the seven systems found some areas of cost growth. However, notable changes such as decreases in the numbers of aircraft and flying hours occurred in both programs after the production milestone estimates were developed, complicating direct comparisons of estimated to actual costs. According to federal guidance, agencies should have a plan to periodically evaluate program results as these may be used to determine whether corrections need to be made and to improve future cost estimates. However, DOD acquisition and cost estimation guidance does not require that O&S cost estimates be updated throughout a system's life cycle or that information on program changes affecting the system's life-cycle O&S costs be retained. The services' acquisition and cost-estimation guidance that GAO reviewed does not consistently and clearly require the updating of O&S cost estimates after a program has ended production. DOD has several departmentwide and service-specific initiatives to address O&S costs of major systems. One DOD program funds projects aimed at improving reliability and reducing O&S costs for existing systems. Other initiatives are aimed at focusing attention on O&S cost requirements and reliability during the acquisition process. In a recent assessment, DOD identified weaknesses in O&S cost management, found deficiencies in sustainment governance, and recommended a number of corrective actions. Many of DOD's initiatives are recent or are not yet implemented.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD take steps to retain life-cycle O&S cost estimates for major systems, collect additional O&S cost elements in its visibility systems, update life-cycle O&S cost estimates periodically after systems are fielded, and retain documentation of program changes affecting O&S costs for use in cost analysis. DOD concurred with GAO's recommendations.

section_title: Letter
paragraphs: The Department of Defense (DOD) spends billions of dollars each year to  sustain its weapon systems. These operating and support (O&S) costs can  account for a significant portion of a weapon system’s total life-cycle costs  and include costs for, among other things, repair parts, maintenance, and  contract services, as well as the personnel associated with a weapon  system. Weapon systems are costly to sustain in part because they often  incorporate a technologically complex array of subsystems and  components and need expensive spare parts and logistics support to meet  required readiness levels. In addition, the high tempo of military  operations in Iraq and Afghanistan has increased wear and tear on many  weapon systems, escalating their O&S costs well beyond peacetime levels.  Many of the key decisions affecting a weapon system’s O&S costs are  made while the system is still in the acquisition process. For example,  acquisition-based decisions about the design, materials, and technology  for the system affect the logistics support that is eventually needed to keep  the system available and ready after it is fielded. Controlling O&S costs is  critical to ensure future affordability of defense budgets. Life-cycle O&S  costs for the F-35 Joint Strike Fighter, the newest aircraft being acquired  for the Air Force, Navy, and Marines, are now estimated at about $916  billion and its operating costs per hour are expected to exceed the legacy  aircraft it is replacing.
To improve DOD’s organization and procedures for acquiring weapon  systems, Congress passed the Weapon Systems Acquisition Reform Act of  2009 (“the Act”). The Act contains provisions regarding improving the  accuracy of cost estimates for major defense acquisition programs. The  Act also directs GAO to review the growth in O&S costs of major weapon  systems and to provide the results of this review not later than 1 year after  the date the legislation is enacted. We provided the preliminary results of  our review to the congressional defense committees in May 2010. This  report provides the final results of our review and addresses (1) the extent  to which life-cycle O&S cost estimates developed during acquisition and  actual O&S costs are available for major weapon system program  management and decision making; (2) the extent to which DOD uses life- cycle O&S cost estimates for major weapon systems after they are fielded  to quantify cost growth and identify its causes; and (3) the efforts taken by  DOD to reduce O&S costs for major weapon systems.
The Act also requires us to review weaknesses in operations affecting the  reliability of financial information on the systems and assets to be  acquired under major defense acquisition programs. We are issuing a  separate report in response to that provision of the Act. Furthermore, the  Act directs the DOD Director of Cost Assessment and Program  Evaluation, within the Office of the Secretary of Defense (OSD), to review  existing DOD systems and methods for tracking and assessing O&S costs  on major defense acquisition programs. In addition, we have conducted  prior work on weapon system O&S cost issues and made  recommendations for better managing and controlling costs. The Related  GAO Products section at the end of this report provides additional  information on our prior work.
To conduct this review, we collected and analyzed data on seven major  aviation weapon systems: the Navy’s F/A-18E/F; the Air Force’s F-22A, B- 1B, and F-15E; and the Army’s AH-64D, CH-47D, and UH-60L. We focused  on aviation systems to allow us to compare O&S cost growth, where  possible, across the selected systems. We selected systems that had  reached initial operating capability after 1980, incurred several years of  actual O&S costs, and had relatively large fleets. We also selected the  systems to reflect varied characteristics in terms of military service,  mission, support strategy, and aircraft age. We did not select weapon  systems with known limitations of available cost data. The results from  this nonprobability sample cannot be used to make inferences about all  aviation systems or major weapon systems because the sample may not  reflect all characteristics of the population. We obtained life-cycle O&S  cost estimates, where available, that the services had developed to support  the decision to proceed with production of the aircraft. We obtained data  on actual O&S costs from the services’ Visibility and Management of  Operating and Support Costs (VAMOSC) systems, which are information  systems designated by DOD as the authoritative sources to provide  visibility over these historical data. In our analysis of O&S costs, we have  adjusted DOD data to reflect constant fiscal year 2010 dollars, unless  otherwise noted. We also interviewed and obtained pertinent documents,  including directives, instructions, regulations, memorandums, and  manuals, from acquisition, program management, cost analysis, and  logistics officials to understand how O&S costs were estimated, tracked,  managed, and controlled in accordance with applicable laws and policies;  and to identify factors that have led to cost growth. Our scope and  methodology is discussed further in appendix I.
We conducted this performance audit from June 2009 to July 2010 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. However, O&S cost data for individual  weapon systems have certain data reliability limitations and are not  consistent across all major systems. We discuss some of these data  limitations in our report.
subsections: section_title: Background
subsections: section_title: O&S Costs Constitute a Significant Portion of a System’s Life-Cycle Costs
paragraphs: A system’s life-cycle costs include the costs for research and development,  procurement, sustainment, and disposal. O&S costs include the direct and  indirect costs of sustaining a fielded system, such as costs for spare parts,  fuel, maintenance, personnel, support facilities, and training equipment.  According to DOD, the O&S costs incurred after a system has been  acquired account for at least 70 percent of a system’s life-cycle costs and  depend on how long a system remains in the inventory. Many of the key  decisions affecting O&S costs are made during the acquisition process,  and a weapon system’s O&S costs depend to a great extent on its expected  readiness level and overall reliability. In general, readiness can be  achieved either by building a highly reliable weapon system or supporting  it with a more extensive logistics system that can ensure spare parts and  other support are available when needed. If a weapon system has a very  high expected readiness rate but its design is not reliable, O&S costs may  be high and more difficult to predict. Conversely, if the weapon system  design has been thoroughly tested for reliability and is robust, O&S costs  may be more predictable.
section_title: O&S Costs Are Required to Be Estimated at Various Points during the Acquisition Process
paragraphs: DOD’s acquisition process includes a series of decision milestones as the  systems enter different stages of development and production. As part of  the process, the DOD component or joint program office responsible for  the acquisition program is required to prepare life-cycle cost estimates,  which include O&S costs, to support these decision milestones and other  reviews. Under the current acquisition process, decision makers at  milestone A determine whether to approve a program to enter into  technology development. Although very little may be known about the  system design, performance, physical characteristics, or operational and  support concepts, DOD guidance states that rough O&S cost estimates are  expected to primarily support plans that guide refinement of the weapon  system concept. At milestone B, a decision is made whether to approve  the program to enter into engineering and manufacturing development. At  this point, according to the guidance, O&S cost estimates and comparisons  should show increased fidelity, consistent with more fully developed  design and support concepts. At this stage, O&S costs are important  because the long-term affordability of the program is assessed, program  alternatives are compared, and O&S cost objectives are established. The  program must pass through milestone C before entering production and  deployment. DOD’s guidance states that at milestone C and at the full-rate  production decision review, O&S cost estimates should be updated and  refined, based on the system’s current design characteristics, the latest  deployment schedule, and current logistics and training support plans.  Further, the guidance states that O&S experience obtained from system  test and evaluation should be used to verify progress in meeting  supportability goals or to identify problem areas. Lastly, O&S cost  objectives should be validated, and any O&S-associated funding issues  should be resolved, according to the guidance.
OSD’s Cost Assessment and Program Evaluation office has established  guidance regarding life-cycle O&S cost estimates that are developed at  acquisition milestone reviews and has defined standards for preparing and  presenting these estimates. Current guidance issued in October 2007  identifies O&S cost elements and groups them into several major areas.  This 2007 guidance—which went into effect after the systems selected for  our review passed through the production milestone—updated and refined  the guidance issued in May 1992. The cost element structure in the 2007  guidance is similar to that of the 1992 guidance, with some key differences.  For example, separate cost elements for intermediate-level and depot-level  maintenance under the 1992 structure were combined into one  maintenance cost element area in 2007. Cost elements for continuing  system improvements were included under sustaining support in 1992 but  separately identified in the 2007 structure. Also, cost elements for  contractor support are no longer separately identified as a single cost area  in the 2007 structure but are spread over other areas. Table 1 summarizes  the 2007 and 1992 cost element structure for O&S cost estimating and  provides a description of DOD’s cost elements.
section_title: The Services Have Developed Systems for Providing Visibility of Actual O&S Costs
paragraphs: Each of the services has developed a system for collecting, maintaining,  and providing visibility over historical information on actual weapon  system O&S costs. Collectively referred to as VAMOSC systems, the  Army’s system is the Operating and Support Management Information  System; the Navy’s system is the Naval Visibility and Management of  Operating and Support Cost system; and the Air Force’s system is the Air  Force Total Ownership Cost system. These systems were developed in  response to long-standing concerns that the services lacked sufficient data  on the actual costs of operating and supporting their weapon systems. For  example, according to a Naval Audit Service report, in 1975 the Deputy  Secretary of Defense directed the military departments to collect actual  O&S costs of defense weapon systems. In 1987, the Senate Committee on  Appropriations requested that each service establish a capability within 4  years to report accurate and verifiable O&S costs for major weapon  systems. In 1992, DOD required that the O&S costs incurred by each  defense program be maintained in a historical O&S data-collection system.  Related guidance tasked the services with establishing historical O&S  data-collection systems and maintaining a record of data that facilitates  the development of a well-defined, standard presentation of O&S costs by  major defense acquisition program.
According to DOD’s guidance, the services’ VAMOSC systems are  supposed to be the authoritative source for the collection of reliable and  consistent historical O&S cost data about major defense programs, and it  is incumbent upon the services to make the data as accurate as possible.  DOD’s stated objectives for the systems include the provision of visibility  of O&S costs so they may be managed to reduce and control program life- cycle costs and the improvement of the validity and credibility of O&S cost  estimates by establishing a widely accepted database. According to the  guidance, the O&S cost element structure provides a well-defined standard  presentation format for the services’ VAMOSC systems.
section_title: Prior GAO Reviews Identified Factors Negatively Affecting DOD’s Ability to Manage O&S Costs
paragraphs: Our work in the late 1990s and in 2003 identified several factors negatively  affecting DOD’s ability to manage O&S costs. First, DOD used immature  technologies and components in designing its weapon systems, which  contributed to reliability problems and acted as a barrier to using  manufacturing techniques that typically help reduce a system’s  maintenance costs. In contrast, commercial companies ensure they  understand their operating costs by analyzing data they have collected on  equipment they are currently using. Second, DOD’s acquisition processes  did not consider O&S costs and readiness as key performance  requirements for new weapon systems and placed higher priority on  technical performance features. Further, DOD continued to place higher  priority on enhanced safety, readiness, or combat capability than on O&S  cost management after system fielding. Third, DOD’s division of  responsibility among its requirements-setting, acquisition, and  maintenance communities made it difficult to control O&S costs, since no  one individual or office had responsibility and authority to manage all O&S  cost elements throughout a weapon system’s life cycle. Fourth, the  services’ VAMOSC systems for accumulating data to analyze operations  and support actions on fielded systems did not provide adequate or  reliable information, thus making it difficult for DOD to understand total  O&S costs.
We have also reported on the effect of DOD weapon system sustainment  strategies on O&S costs. For example, we reported in 2008 that although  DOD expected that the use of performance-based logistics arrangements  would reduce O&S costs, it was unclear whether these arrangements were  meeting this goal. The services were not consistent in their use of business  case analyses to support decisions to enter into performance-based  logistics arrangements. Also, DOD program offices that implemented these  arrangements had not obtained detailed cost data from contractors and  could not provide evidence of cost reductions attributable to the use of a  performance-based logistics arrangement. Finally, we have reported on  O&S cost issues associated with individual weapon systems, including the  Marine Corps’ V-22 aircraft in 2009 and the Navy’s Littoral Combat Ship in  2010.
section_title: Better Information and Guidance Could Help DOD to More Effectively Manage and Reduce O&S Costs of Major Weapons Systems
subsections: section_title: Life-Cycle O&S Cost Estimates for the Production Milestone Were Not Available for Five of the Seven Systems Reviewed
paragraphs: The services did not have the life-cycle O&S cost estimates that were  prepared at the production milestone for most of the aviation weapon  systems in our sample. Specifically, production milestone O&S cost  estimates were available for two of the seven systems we reviewed—the  Air Force’s F-22A and the Navy’s F/A-18E/F. We requested cost estimates  from a variety of sources, including service and OSD offices that were  identified as likely repositories of these estimates. However, service  acquisition, program management, and cost analysis officials we contacted  could not provide these estimates for the Army’s CH-47D, AH-64D, and  UH-60L or the Air Force’s F-15E or B-1B. OSD offices we contacted,  including the OSD Deputy Director for Cost Assessment and offices within  the Under Secretary of Defense for Acquisition, Technology and Logistics,  also could not provide the cost estimates for these five systems.
Without the production milestone cost estimates, DOD officials do not  have important information necessary for analyzing the rate of O&S cost  growth, identifying cost drivers, and developing plans for managing and  controlling these costs. In addition, at a time when the nation faces fiscal  challenges and defense budgets may become tighter, the lack of this key  information hinders sound weapon-system program management and  decision making in an area of high costs to the federal government. In a  recent speech, the Secretary of Defense stated that given the nation’s  difficult economic circumstances and parlous fiscal condition, DOD will  need to reduce overhead costs and transfer those savings to force  structure and modernization within the programmed budget. DOD officials  we interviewed noted that the department has not placed emphasis on  assessing and managing weapon system O&S costs compared with other  priorities. Moreover, our prior work has shown that rather than limit the  number and size of weapon system programs or adjust requirements,  DOD’s funding process attempts to accommodate programs. This creates  an unhealthy competition for funds that encourages sponsors of weapon  system programs to pursue overambitious capabilities and to  underestimate costs.
DOD acquisition guidance has required the development of life-cycle cost  estimates for acquisition milestone reviews since at least 1980. Based on  the historical acquisition milestones for the five systems with missing  estimates, the approximate dates that the production milestone life-cycle  O&S cost estimates should have been prepared were 1980 for the Army’s  CH-47D, 1985 for the Air Force’s F-15E, 1989 for the Army’s UH-60L and  the Air Force’s B-1B, and 1995 for the Army’s AH-64D. Additionally, DOD  has been required to obtain independent cost assessments since the 1980s.  We requested any independent estimates that had been prepared for the  systems we reviewed from the OSD Cost Assessment and Program  Evaluation office, but the office could not provide them. The service  estimates were prepared in 2000 for the F/A-18E/F and in 2005 for the F- 22A. While DOD officials could not explain why life-cycle O&S cost  estimates for the other five systems were not available, they said that  likely reasons were loss due to office moves, computer failures, and  purging of older files. Further, prior DOD and service guidance may not  have addressed the retention of cost estimates. The two systems for which  cost estimates were available had the most recent production milestones  of the systems in our sample.
Under GAO’s guidance for cost-estimating best practices, issued in 2009,  thorough documentation and retention of cost estimates are essential in  order to analyze changes that can aid preparation of future cost  estimates. However, with the exception of the Army, current DOD and  service acquisition and cost estimation guidance do not specifically  address requirements for retaining O&S cost estimates and the support  documentation used to develop the estimates. For example, although  DOD’s cost-estimation guidance emphasizes the need for formal, complete  documentation of source data, methods, and results, neither it nor DOD’s  acquisition policy specifically addresses retention of cost estimate  documentation.
Naval Air Systems Command officials said they retained the  production milestone O&S cost estimates for the F/A-18E/F because  this was a good practice; however, they were not aware of any Navy  guidance that required such retention. While the Navy’s current  acquisition and cost analysis instructions state that records created  under the instructions should be retained in accordance with the  Navy’s records management guidance, the records management  manual does not clearly identify any requirements for retaining  acquisition cost estimates for aircraft. In addition, we found that  although the estimate for the F/A-18E/F was retained, some of the  supporting documentation was incorrect or incomplete.
The Air Force’s acquisition and cost estimation guidance is also  unclear with regard to retention of cost estimates. An Air Force  acquisition instruction states that the program manager is responsible  for developing appropriate program documentation and for  maintaining this documentation throughout the life cycle of the  system, as well as maintaining a realistic cost estimate and ensuring it  is well documented to firmly support budget requests. However, we  did not find any references to retaining cost estimates specifically  related to acquisition milestones in either this instruction or other Air  Force acquisition and cost estimation guidance.
Only the Army’s current acquisition regulation states that all  documentation required by the milestone decision authority for each  milestone review must be retained on file in the program office for the  life of the program, although the regulation does not make specific  reference to retaining the O&S cost estimate. The production  milestones for the three Army systems we reviewed predate the  Army’s current regulation, which was issued in 2003.
section_title: Complete Data on Actual O&S Costs Were Not Collected in the Services’ VAMOSC Systems
paragraphs: The services’ VAMOSC systems did not collect complete data on actual  O&S costs. The Air Force’s and Navy’s systems did not collect actual cost  data for some cost elements that DOD guidance recommends be collected,  and the Army’s system was the most limited. Additionally, we found that  data for some cost elements were not accurate. DOD guidance  recommends—but does not require—that the cost element structure used  for life-cycle O&S cost estimating also be used by the services to collect  and present actual cost data. Such guidance, if followed, could enable  comparisons between estimated and actual costs. Some O&S cost data  that are not collected in the VAMOSC systems may be found in other of the  services’ information systems or from other sources. However, these data  may not be readily available for the purpose of analyzing weapon system  O&S costs. Without complete data on actual O&S costs, DOD officials do  not have important information necessary for analyzing the rate of O&S  cost growth, identifying cost drivers, and developing plans for managing  and controlling these costs.
subsections: section_title: Air Force’s VAMOSC System
paragraphs: While the Air Force’s VAMOSC system collected actual cost data on many  of DOD’s recommended cost elements, it did not collect data on some cost  elements for the weapon systems we reviewed. For example, the Air  Force’s VAMOSC system did not collect actual O&S costs for support  equipment replacement, modifications, or interim contractor support.  According to service officials, the F-22A, the F-15E, and the B-1B incurred  support equipment replacement and O&S modification costs, and the F- 22A incurred interim contractor support costs. Air Force officials  responsible for the VAMOSC system told us that actual cost data on these  three cost elements are contained in another information system, the Air  Force General Accounting and Finance System–Reengineered, but the  data are not identifiable because procurement officials often do not apply  the established accounting and budgeting structure when they entered into  procurement contracts. Further, the Air Force lacks a standard structure  for capturing contractor logistics support costs that could provide  additional visibility over both procurement and O&S costs. For example,  although program officials said the F-22A was supported under interim  contractor support in 2006 and 2007, no F-22A interim support costs were  included in the VAMOSC system.
Further, according to officials, a recent change in the way the Air Force  funds repair parts also introduced inaccuracies into that service’s  VAMOSC system. Starting in fiscal year 2008, the Air Force centralized the  funding of its flying operations at higher-level commands that support a  number of aircraft and bases. For example, the Air Force Material  Command now funds flying operations for most active units. Prior to that  time, the Air Force provided funding for repair parts directly to lower-level  organizational units that paid for each part when ordered. Under the new  process, the higher-level commands provide funding for repair parts to the  Air Force Working Capital Fund based on the anticipated number of flying  hours and an estimated rate necessary to purchase repair parts per hour of  use. Since repair parts funding is now based on such estimates, there have  been differences between the amounts provided and the actual costs  incurred. For example, officials indicated that in fiscal year 2008  overpayments of $430 million were provided for repair parts, and in fiscal  year 2009 the overpayment amount was $188 million. Although the total  overpayment amount can be identified, the Air Force cannot identify  which specific programs overpaid, so the entire overpayment amount was  recorded against the B-1B’s O&S costs in the Air Force accounting system.  VAMOSC system officials were aware of this inaccuracy and removed the  amount from the B-1B’s O&S costs within the VAMOSC system. However,  because these officials said they do not have the information necessary to  apply the appropriate amount of the refund to the appropriate programs,  they placed the funds into an account not associated with a particular  weapon system. Therefore, the actual O&S costs for repair parts reported  by VAMOSC system could be inaccurate for one or more weapon systems  for at least the past 2 years.
section_title: Navy’s VAMOSC System
paragraphs: For the F/A-18E/F, the Navy’s VAMOSC system collected data on many of  DOD’s recommended cost elements but did not collect actual O&S costs  for interim contractor support costs, civilian personnel, and indirect  infrastructure costs by weapon system. Navy officials responsible for the  VAMOSC system told us it did not collect interim contactor support costs  because the Navy considers these to be procurement rather than O&S  costs. According to Navy officials, the F/A-18E/F incurred interim  contractor support costs prior to fiscal year 2003. Navy officials are  currently attempting to add direct civilian personnel costs from the Navy’s  Standard Accounting and Reporting System. However, since it is difficult  to identify these costs by weapon system, aggregated civilian personnel  costs are currently captured within a separate section of the VAMOSC  system. In addition, Navy officials said indirect infrastructure costs are  captured in the aggregate within a separate section of the VAMOSC system  and are not reported within the O&S costs of each weapon system.  According to Navy officials, these indirect infrastructure costs are not  available by weapon system because of the time and resources that would  be necessary to match real property records—indicating the use of the  facility—to command installation records that contain the costs to operate  the facility.
Further, we found that some of the cost elements in the Navy’s VAMOSC  systems were not accurate. For example, the Navy’s VAMOSC system did  not separately report F/A-18E/F costs for intermediate-level repair parts  and materials and supplies. According to Navy officials, intermediate-level  costs were included as unit-level repair parts and materials and supplies  due to the way the Navy’s accounting system captures these costs. Also,  officials noted that support equipment maintenance costs were inaccurate  because some of these costs were subsumed under other cost elements.  Further, Navy officials said that the VAMOSC system reported costs for all  F/A-18E/F modifications, including those that added capabilities and those  that improved safety, reliability, maintainability, or the performance  characteristics necessary to meet basic operational requirements.  According to OSD guidance, modifications to add capabilities are  considered a procurement cost and therefore should not be reported as an  O&S cost in the VAMOSC system. According to Navy officials, they are  unable to separate the different types of modification costs in order to  provide visibility for the O&S modification costs.
section_title: Army’s VAMOSC System
paragraphs: Compared with the Navy’s and Air Force’s systems, the Army’s VAMOSC  system is the most limited in terms of actual O&S cost data collected. For  the three types of Army aircraft we reviewed, the VAMOSC system  consistently collected data for unit-level consumption cost elements: fuel,  materials and supplies, repair parts, and training munitions. Costs for  depot maintenance, while collected in the system, are not presented in the  OSD-recommended cost element structure. The system does not include  personnel cost data and instead provides a link to another database. In  addition, Army officials said the VAMOSC system generally collected costs  for only government-provided logistics support and currently contained  costs for two weapon systems supported under contractor logistics  support arrangements (the Stryker armored combat vehicle and UH-72A  Light Utility Helicopter). Further, Army officials said that the costs for  materials and supplies and for repair parts were added to the VAMOSC  system when the items were transferred to the unit instead of when they  were actually used. Also, many of the costs were allocated based on  demand, quantity, and price assumptions. That is, if more than one  weapon system used a repair part, the costs for this part were allocated to  each weapon system based on the number of aircraft. While this may be a  reasonable allocation method, the VAMOSC system may not reflect the  actual O&S costs for the weapon systems that used the part.
We reported on deficiencies of the Army’s VAMOSC system in 2000. Our  prior work found that the Army did not have complete and reliable data on  actual O&S costs of weapon systems. Specifically, the Army’s VAMOSC  system did not collect data on O&S cost elements such as contractor  logistics support, supply depot support, and software support. Further, we  reported that the VAMOSC system did not contain cost data on individual  maintenance events, such as removal and assessment of failed parts. We  concluded that without complete O&S cost data, Army program managers  could not assess cost drivers and trends in order to identify cost-reduction  initiatives. Although we recommended that the Army improve its VAMOSC  system by collecting data on additional O&S cost elements, the Army has  not made significant improvements. According to Army officials  responsible for the VAMOSC system, it was designed to collect  information from other information systems. Therefore, it cannot collect  data on other cost elements unless another information system captures  these costs. According to Army officials, two information systems that the  Army is developing—the General Fund Enterprise Business System and  the Global Combat Support System—may enable the service to collect  additional O&S cost data in the future.
Even with these planned information systems, it is unclear what additional  O&S cost data will be collected, how quickly the Army will be able to  incorporate the data into its VAMOSC system, what resources may be  needed, or what additional limitations the service may face in improving  its VAMOSC system. Army officials, for example, do not expect the  General Fund Enterprise Business System to become fully operational  until the end of fiscal year 2012, and full operation of the Global Combat  Support System will occur later, in fiscal year 2015. Army officials also  said while they have requested that additional O&S cost data be collected  by weapon system, it is too early to tell whether these data will be  collected.
section_title: The Services Generally Do Not Use Updated Life-Cycle Estimates to Assess O&S Cost Growth for Fielded Weapon Systems
subsections: section_title: Life-Cycle O&S Cost Estimates Were Not Periodically Updated after Fielding for Six of the Seven Systems Reviewed
paragraphs: For six of the seven systems selected for our review, the services did not  periodically update life-cycle O&S cost estimates after the systems were  fielded, even though most of the systems have been in DOD’s inventory for  over a decade. Only the program office for the F-22A had updated its  production milestone cost estimate. According to Office of Management  and Budget guidance on benefit-cost analysis, agencies should have a  plan for periodic, results-oriented evaluation of the effectiveness of federal  programs. The guidance also notes that retrospective studies can be  valuable in determining if any corrections need to be made to existing  programs and to improve future estimates of other federal programs. In  addition, cost-estimating best practices call for such estimates to be  regularly updated. The purpose of updating the cost estimates is to  determine whether the preliminary information and assumptions remain  relevant and accurate, record reasons for variances so that the accuracy of  the estimate can be tracked, and archive cost and technical data for use in  future estimates. Despite the benefit-cost analysis guidance and cost- estimating best practices, service officials for six of the seven aviation  weapon systems we reviewed could not provide current, updated O&S  cost estimates that incorporated actual historical costs or analysis of  actual costs compared to the estimate prepared at the production  milestone. While cost estimates were prepared for major modifications to  some of the systems in our review, these estimates were limited in scope  and did not incorporate actual cost data.
The Air Force’s updated life-cycle O&S cost estimate for the F-22A  illustrates the potential magnitude of changes in O&S costs that a weapon  system may experience over its life cycle. When the F-22A program office  updated the 2005 cost estimate in 2009, it found a 47-percent increase in  life-cycle O&S costs. The 2009 estimate of about $59 billion to operate  and support the F-22A is $19 billion more than was estimated in 2005. The  increase in life-cycle O&S costs occurred despite a 34-percent reduction in  fleet size from 277 aircraft projected in the 2005 estimate to 184 aircraft  projected in the 2009 estimate. The program office also compared the two  estimates to identify areas of cost growth. According to the program  office, the projected O&S cost growth was due to rising aircraft repair  costs, unrealized savings from using a performance-based logistics  arrangement to support the aircraft, an increased number of maintenance  personnel needed to maintain the F-22A’s specialized stealth exterior,  military pay raises that were greater than forecast, and personnel costs of  Air National Guard and Air Force Reserve units assigned to F-22A units  that were not included in the production milestone estimate.
A 2007 independent review by the Air Force Cost Analysis Agency also  projected future O&S cost growth for the F-22A. According to Air Force  Cost Analysis Agency officials, the review was initiated because cost data  showed the F-22A’s cost per flying hour was higher than projected in the  2007 President’s Budget, prompting concerns that the future O&S costs of  the aircraft were underestimated. Specifically, the fiscal year 2007 actual  cost per flight hour was $55,783, about 65 percent higher than the $33,762  projected in the 2007 President’s Budget. The Air Force Cost Analysis  Agency estimated that in 2015 (when the system would be fully mature),  the F-22A’s projected cost per flight hour would be $48,236, or 113 percent  higher than the $22,665 cost per flight hour in 2015 that had been  estimated in 2005. The estimated cost per flight hour increased  $8,174 because fixed O&S costs did not decrease in proportion to the  reductions in the number of planned aircraft (277 to 183) and annual  flight hours per aircraft (366 to 277);  $4,005 because the formula used in the 2005 estimate to calculate the  cost to refurbish broken repair parts understated the potential costs;  $2,414 for engine depot maintenance costs due to higher-than- previously-projected engine cycles per flying hour;  $2,118 for higher costs for purchasing repair parts not in production or  with diminishing manufacturing sources;  $2,008 because of unrealized economies of scale for repair parts due to  smaller quantity purchases (based on reduced aircraft and flying  hours);  $1,670 for additional costs for munitions maintainers, training  munitions, and fuel consumption associated with a new capability—an  air-to-ground mission; and  $1,641 for additional maintenance due to lower levels of weapon  system reliability than projected in the production milestone O&S cost  estimate.
The remaining $3,542 cost per flight hour increase identified by the Air  Force Cost Analysis Agency’s review was due to changes in personnel  requirements, a new requirement to remove and replace the stealth  coating mid-way through the aircraft’s life, labor rate increases, immature  engine repair procedures, and the administrative cost of Air National  Guard units assigned to active duty units or active duty units assigned to  Air Force Reserve or Air National Guard units.
section_title: Program Changes over Time Complicate Comparisons of Estimated to Actual O&S Costs for Two Systems
paragraphs: For the two aviation systems where both estimated and actual O&S cost  data were available, we found that although there were some areas of cost  growth, direct comparisons between estimated and actual costs were  complicated in part because of program changes that occurred after the  estimates were developed at the production milestone. For example, the  Air Force and Navy had fewer F-22A and F/A-18E/F aircraft, respectively,  in their inventories and flew fewer hours than planned when the estimates  were developed. In addition, a recent, OSD-sponsored study of the Air  Force’s C-17 aircraft identified various changes that can occur over a  weapon system’s life-cycle and lead to O&S cost growth. For the C-17,  these changes included factors internal to the program, factors external to  the program, and changes in accounting methods. (The findings from that  study are summarized in app. II.)
subsections: section_title: Analysis of Estimated and Actual O&S Costs for the F-22A
paragraphs: Our analysis showed that actual O&S costs for the Air Force’s F-22A  totaled $3.6 billion from fiscal years 2005 to 2009, excluding amounts for  interim contractor support. This amount compared to $3.8 billion  projected for these years in the 2005 production milestone O&S cost  estimate. (Fig. 1 shows estimated and actual costs for each year.)  However, the Air Force had 125 aircraft in its inventory in fiscal year 2009  rather than the 143 aircraft projected in the 2005 cost estimate. Also, the  aircraft fleet actually flew 68,261 hours over this time period rather than  the 134,618 hours projected in the 2005 cost estimate. On a per flight hour  basis, the fiscal year 2009 actual O&S costs were $51,829, or 88 percent  higher than the $27,559 forecast in 2005 after accounting for inflation.
The use of contractor logistics support for the F-22A further complicated  comparisons of actual costs to the estimated costs developed in 2005.  Although the F-22A has been supported under contractor logistics support  arrangements since before 2005, the estimates included the costs for  government-provided logistics support of the aircraft. For example, for  fiscal years 2005 through 2009, the O&S cost estimate projected that  contractor logistics support would cost $736 million. However, actual  contractor logistics support costs for the F-22A were $2.1 billion. For fiscal  years 2005 through 2009, F-22A contractor logistics support costs were 60  percent of the total actual O&S costs reported in the Air Force’s VAMOSC  system. Due to the use of this support arrangement, however, the Air  Force’s VAMOSC system reports all of the amounts paid to the F-22A  contractor under a single cost element instead of under multiple individual  cost elements. In contrast, program officials confirmed that various  contractor-provided cost elements—such as repair parts, materials and  supplies, depot maintenance, and sustaining support—were included in  the production milestone O&S cost estimate as separate items. Further,  according to officials, prior to 2008 the program office did not obtain from  the contractor cost reports that provide details of how the amounts paid to  the contractor were spent in terms of DOD’s recommended O&S cost  elements by fiscal year. Therefore, it is not possible to compare a  significant amount of the actual O&S costs for the F-22A to the production  milestone estimate at the cost element level.
Of the remaining F-22A O&S costs not covered by contractor logistics  support, mission personnel costs constituted the largest proportion— approximately 22 percent—of the total actual O&S costs reported for  fiscal years 2005 through 2009. Compared with the estimates developed in  2005, actual mission personnel costs were $34 million (20 percent) higher  for fiscal year 2008 and $113 million (62 percent) higher for fiscal year  2009. The 2005 estimate provided for 1,335 maintenance personnel for  each F-22A wing (which was projected to number 72 aircraft), but  according to Air Force officials the current authorized personnel for an F- 22A wing (now numbering 36 aircraft) is 1,051 maintenance personnel.  While the number of aircraft per wing was reduced by half, the number of  personnel was reduced by about 21 percent. According to officials,  although the change in wing composition from three squadrons of 24  aircraft to two squadrons of 18 aircraft reduced personnel requirements,  additional personnel who were not included in the 2005 estimate are now  required to support the aircraft’s added air-to-ground mission, an  increased maintenance requirement for the aircraft’s stealth exterior, and  other maintenance requirements that were determined through a 2007  staffing study. In addition, Air National Guard and Air Force Reserve  units were not included in the 2005 estimate, so the personnel costs of  these units resulted in higher actual costs. Finally, as noted in the F-22A  program office’s 2009 update to the life-cycle O&S cost estimate, military  pay raises given to service members were greater than forecast in the  production milestone estimate.
section_title: Analysis of Estimated and Actual O&S Costs for the F/A- 18E/F
paragraphs: Our analysis for the Navy’s F/A-18E/F showed that total actual O&S costs  for fiscal years 1999 through 2009 were about $8.7 billion. This amount  compares to the $8.8 billion projected for these years in the 1999  production milestone O&S cost estimate. However, program changes  complicate direct comparisons between estimated and actual costs, as  they do for the F-22A. For example, the Navy estimated that it would have  428 aircraft in fiscal year 2009, but the actual number of aircraft was 358,  about 16 percent less. Similarly, the Navy estimated that the aircraft fleet  as a whole would fly 780,628 hours from fiscal year 1999 through 2009, but  the aircraft fleet actually flew 625,067 hours, or 20 percent less. On a per  flight hour basis, the fiscal year 2009 O&S costs were $15,346, 40 percent  higher than the $10,979 forecast in 1999. Although total actual costs were  less than estimated for the 11-year period, actual annual costs for fiscal  years 2005 through 2009 have exceeded the annual estimates by an  average of 10 percent after accounting for inflation (see fig. 2).
With regard to individual cost elements, our comparison of actual O&S  costs for fiscal years 1999 through 2009 to those projected in the 1999  estimate found that actual costs for fuel, modifications, depot  maintenance, and intermediate maintenance were higher than originally  estimated while training costs were much lower. (App. III presents a more  detailed comparison of actual and estimated O&S costs for the F/A-18E/F.)  In discussing findings from this comparison with cost analysts at the Naval  Air Systems Command, they provided the following explanations for key  changes we identified:    Fuel costs were higher than estimated because the price of fuel has  increased overall since the estimate was developed in 1999. Further,  when the estimate was developed, it was assumed the F/A-18E/F  aircraft’s fuel consumption would be similar to that of the F/A-18C/D.  However, this did not prove to be an accurate analogy, and the F/A- 18E/F’s fuel consumption has been higher than that of the earlier  model aircraft. The analysts also said that some of the increased fuel  costs for fiscal year 2005 through 2009 may also be attributed to  increased refueling activity of the F/A-18E/F after the retirement of the  S-3B aircraft.
Depot maintenance costs were higher than estimated, in part because  the engine was repaired by a contractor under a performance-based  logistics arrangement, but the estimate projected costs for  government-provided support. The government repair estimate  included a large initial investment of procurement funds—which are  not considered O&S costs—for spare parts. The Navy subsequently  changed the engine repair concept to a performance-based logistics  arrangement with less expensive spare parts and reduced the initial  investment by about 15 percent. However, as a result of the new  arrangement, depot maintenance costs increased. Further, the 1999  estimate purposefully excluded some engine depot-maintenance costs  in order to keep a consistent comparison with similar costs for the  F/A-18A-D models. (These costs were instead included in the estimate  as costs for repair parts.) However, after adjusting for these issues,  actual engine depot maintenance costs in fiscal years 2007 and 2009  were higher by a total of approximately $64 million, and Navy officials  could not explain this variance. Additionally, the production milestone  estimate developed in 1999 included costs for support equipment  replacement, which are not captured in the Navy’s VAMOSC system.
Actual costs for aviation repair parts were higher than estimated after  removing the costs that should have been included as engine depot- maintenance costs from the estimate.
Intermediate-level maintenance costs were higher than projected  because the estimate did not include personnel costs for shore-based,  intermediate-level maintenance.
Modification costs were higher than projected because the Navy’s  VAMOSC system collected costs for all procurement-funded  modifications, including those that added capabilities, while the  estimate only projected costs for flight-safety modifications.
Training costs were lower than estimated because the Navy’s VAMOSC  system did not include actual nonmaintenance training costs such as  initial pilot and naval flight officer training and installation support  costs. These costs were included in the cost estimate.
section_title: Actual O&S Costs Increased for Five Systems, but Extent of Planned Cost Growth Is Uncertain
paragraphs: Although we did not have production milestone estimates of life-cycle  O&S costs for the Air Force’s F-15E and B-1B or for the Army’s AH-64D,  CH-47D, and UH-60L, we reviewed changes in actual O&S costs for each  system and found that costs increased over time for a variety of reasons.  As noted earlier, some cost elements are not maintained in the services’  VAMOSC systems or are not accurate, and our analysis was subject to  these limitations. Furthermore, we could not determine the extent to  which the cost growth was planned since the services could not provide us  with the O&S cost estimates developed for the production milestone.  According to service cost analysis officials, actual O&S costs for these  systems were likely higher than estimated because such estimates are  typically based on peacetime usage rather than wartime usage  assumptions. Further, service cost analysts said that since the late 1990’s  actual costs for repair parts have grown faster than the OSD inflation rates  that are used to develop O&S cost estimates.
subsections: section_title: Actual O&S Costs for the F-15E for Fiscal Years 1996 through 2009
paragraphs: Total actual O&S costs for the Air Force’s F-15E increased 82 percent from  $944 million in fiscal year 1996 to $1.7 billion in fiscal year 2009 (see fig. 3).  The number of F-15E aircraft increased 8 percent from 200 to 215 during  this time period, and the number of flight hours increased 7 percent from  60,726 to 65,054. Per aircraft, O&S costs increased 69 percent from $5  million to $8 million over this period, and the cost per flight hour  increased 70 percent from $15,538 to $26,408.
Our analysis found that personnel, fuel, repair parts, and depot  maintenance accounted for about 95 percent of the overall increase in F- 15E O&S costs from fiscal years 1996 to 2009. For example, actual  personnel costs grew by $73 million (19 percent) over the period. Most of  the growth was due to wage increases rather than increases in the number  of personnel. Also, fuel costs increased $142 million (18 percent) during  these years. According to program officials, this increase was mainly due  to higher fuel prices rather than increased consumption. Cost for repair  parts grew $398 million (51 percent), and program officials attributed  some of this growth to higher costs for materials used during depot repair,  as well as higher prices paid for labor, storage, and handling. Further,  officials said that several avionics systems on the F-15E have been  replaced and the costs to repair some of the new components are higher.  Depot maintenance costs increased $124 million (16 percent) and program  officials said this increase was due to increasing rates for depot work,  noting that the Air Logistics Centers increased their rates because of  higher material costs. Also, officials said that as aircraft age the number  of subsystems that require repair increases, which results in additional  tasks being required during planned depot maintenance. For example, the  F-15C/Ds that are expected to fly until 2025 will be completely rewired in  planned depot maintenance because the original wiring is deteriorating. A  similar program is planned in the future for the F-15Es and is expected to  significantly increase the cost of planned depot maintenance for that  aircraft.
section_title: Actual O&S Costs for the B-1B for Fiscal Years 1999 through 2009
paragraphs: Annual actual O&S costs for the Air Force’s B-1B increased 21 percent  from $1.1 billion in fiscal year 1999 to $1.3 billion in fiscal year 2009 (see  fig. 4). This cost growth occurred despite a 29 percent reduction in the  aircraft fleet from 93 to 66 during the same period. Per aircraft, O&S costs  increased 71 percent from $11 million to $19 million, and the cost per  flight hour increased 23 percent from $46,224 to $56,982.
Our analysis showed that fuel, repair parts, and depot maintenance  accounted for 97 percent of the overall increase in B-1B O&S costs from  fiscal years 1999 through 2009. Fuel costs increased $89.4 million (40  percent), which program officials attributed mainly to higher fuel costs  and increased utilization of the aircraft in recent years. Program officials  reported that in each of the last 3 full fiscal years (2007, 2008, and 2009),  the hourly utilization rate per aircraft was 46 percent, 51 percent, and 54  percent higher, respectively, than in fiscal year 1999. According to the  program office, the increased cost for repair parts, which grew $51.9  million (23 percent), was due to the increased cost of materials consumed  in the refurbishment of repair parts. Depot maintenance costs increased  $77.1 million (34 percent), and program officials said this increase was due  to higher utilization of aircraft, increased labor and material costs, and  changes in cost accounting.
section_title: Actual O&S Costs for the AH- 64D, CH-47D, and UH-60L for Fiscal Years 1998 through 2007
paragraphs: The Army’s O&S data on unit-level consumption costs for the AH-64D, CH- 47D, and UH-60L showed that all three experienced significant cost growth  from fiscal years 1998 through 2007. However, as table 2 shows, the size  of the fleets and numbers of flying hours also increased, with the AH-64D  experiencing the greatest growth. According to Army officials, fiscal year  1998 costs reflected peacetime training only, whereas data for fiscal year  2007 also includes costs for units deployed in Afghanistan and Iraq. O&S  costs for deployed units constituted more than half of the total O&S  dollars for these aircraft in fiscal year 2007.
Measured by flight hour, Army unit-level consumption costs increased 51  percent per flight hour for the CH-47D and 111 percent per flight hour for  the UH-60L, and decreased 3 percent per flight hour for the AH-64D, from  fiscal year 1998 to 2007. As discussed earlier in the report, unit-level  consumption costs reported in the Army’s VAMOSC system include fuel,  materials and supplies, repair parts, and training munitions. As shown in  table 3, fuel costs increased by more than 140 percent for all three  systems, the costs of materials and supplies and repair parts also  increased for each system, and the cost of training munitions decreased.  The decreased cost of training munitions drove the overall decrease in  unit-level consumption costs for the AH-64D, and a program official stated  this was likely due to the significant amount of training conducted during  the initial fielding of the AH-64D in 1998.
section_title: Updated Estimates of Life- Cycle O&S Costs and Documentation of Program Changes Are Generally Not Required after Weapon System Production Decisions
paragraphs: Even though periodic updates to life-cycle O&S cost estimates could  quantify any cost growth in major weapon systems and help identify cost  drivers, DOD acquisition and cost-estimating guidance do not require that  O&S cost estimates be updated after a program has completed production.  Service guidance that we reviewed does not consistently and clearly  require the updating of O&S cost estimates after a program has completed  production. Additionally, although our review showed program changes  can have a large effect on actual O&S costs after cost estimates are  developed at the production milestone, DOD and service acquisition  guidance do not require program offices to maintain documentation of  such changes for use in cost analysis.
Federal law requires that a full life-cycle cost analysis for each major  defense acquisition program be included in the programs’ annual Selected  Acquisition Reports to Congress. Requirements related to Selected  Acquisition Reports, however, end when a weapon system has reached 90  percent of production. In addition, we found that for the systems we  reviewed, the estimated O&S costs included in the Selected Acquisition  Reports were sometimes not updated. For our sample, the estimated O&S  costs included in the annual reports for the F-22A remained unchanged  from 2005 through 2007, and the services did not have current updated life- cycle O&S cost estimates for the other six weapon systems we reviewed.  Further, while life-cycle costs are required to be reported in the Selected  Acquisition Reports, OSD officials noted that the calculation of the  estimate may be inconsistent. For example, cost analysts at the Naval Air  Systems Command maintain a cost-estimating model for the F/A-18E/F  that is regularly updated and used to develop O&S cost estimates for the  Selected Acquisition Reports and other analyses to improve cost  effectiveness. However, the methodology used to develop the Navy’s cost  estimates for the Selected Acquisition Reports differs from the  methodology used to develop life-cycle cost estimates for acquisition  milestone decisions and includes significantly more infrastructure costs.  According to the Naval Air System Command guidance, the estimates for  the Selected Acquisition Reports are not comparable to the acquisition  milestone life-cycle cost estimates without adjusting for the different  ground rules and assumptions used. The estimates for the Selected  Acquisition Reports also are not comparable to the costs reported in the  Navy’s VAMOSC system.
DOD acquisition policy requires the services to provide life-cycle O&S cost  estimates for decisions made during specific points in the acquisition  process, including the production decision, but neither this policy nor  DOD’s cost-estimating guidance require O&S cost estimates for systems  that have been fielded. In a December 2008 memorandum, DOD also  required that several metrics, including an ownership cost metric, be  reported quarterly for all major weapon defense acquisition programs.  However, this quarterly reporting policy does not currently apply to  weapon systems that have completed production and are no longer  reporting information in the Selected Acquisition Reports to Congress. Of  the weapon systems we reviewed, program offices for the AH-64D, F-22A,  and F/A-18E/F currently provide Selected Acquisition Reports to Congress.
The Army regulation and Navy instructions we reviewed do not address  updating life-cycle O&S cost estimates for systems that have been fielded.  Although the Air Force has a directive requiring annual updates to  program cost estimates, it does not specifically mention life-cycle O&S  cost estimates. An Air Force directive issued in August 2008 includes the  requirement that major acquisition program cost estimates be updated  annually and used for acquisition purposes, such as milestone decisions,  and other planning, programming, budgeting, and execution decisions.  The directive also states that it is applicable to organizations that manage  both acquisition and sustainment programs. However, as mentioned  earlier, service and OSD officials were unable to locate O&S cost estimates  for the F-15E and the B-1B aircraft. According to Air Force cost analysis  and policy officials, the requirement for annual cost estimate updates is  applicable to programs no longer in acquisition, but they are still  developing the Air Force instruction that will contain more specific  guidance for implementing the 2008 directive. The officials expect that,  once issued, the Air Force instruction will clarify the requirement to  update O&S cost estimates annually.
In addition, changes in weapon system programs affected the assumptions  used in production-milestone life-cycle O&S cost estimates, but DOD and  service acquisition guidance that we reviewed do not explicitly require the  services to maintain documentation of program changes affecting O&S  costs. According to federal standards for internal control, information  should be recorded and communicated to management and others within  the entity who need it and in a form and within a time frame that enables  them to carry out their internal control and other responsibilities. Also,  managers need to compare actual performance to planned or expected  results and analyze significant differences.
section_title: DOD Has Departmentwide and Service-Specific Initiatives to Address Weapon System O&S Costs
subsections: section_title: Several Departmentwide Initiatives Address Weapon System O&S Costs
paragraphs: DOD has several departmentwide initiatives to address weapon system  O&S costs. The DOD-wide Reduction in Total Ownership Costs–Special  Interest Program, initiated in 2005, is aimed at reducing weapon system  O&S costs by improving reliability and maintainability and reducing total  ownership costs in weapon systems that are already fielded. Program  funding totaled about $25 million in fiscal year 2009. For its 15 funded  projects, DOD forecasts total ownership cost savings for fiscal years 2006  through 2011 to be $9.5 billion, with an average 60 to 1 return on  investment. For example, according to officials, the program is funding  an effort to develop trend analysis software to diagnose and resolve  problems with the F/A-18 aircraft.
Other departmentwide initiatives seek to better manage O&S costs of  major weapon systems during the acquisition process. Some of these  initiatives address factors we previously identified as negatively affecting  DOD’s ability to manage O&S costs. In 2003, we reported that DOD did not  consider O&S costs and readiness as key performance requirements for  new weapon systems and placed higher priority on technical performance  features. In 2007, DOD began requiring the services to establish an  ownership cost metric during the requirements determination and  acquisition processes for weapon systems in order to ensure that O&S  costs are considered early in decision making. According to current Joint  Staff guidance, the ownership cost metric and reliability metric are key  system attributes of the sustainment (or materiel availability) key  performance parameter. While the ownership cost metric includes many  of OSD’s recommended O&S cost elements, such as energy (fuel, oil,  petroleum, electricity, etc.), maintenance, sustaining support, and  continuous system improvements, it does not include personnel and  system-specific training costs. In 2008, OSD expanded the use of the  ownership cost and materiel reliability metrics, along with the materiel  availability key performance parameter, to all major defense acquisition  programs that provide information to Congress in Selected Acquisition  Reports. In a July 2008 memorandum intended to reinforce the use of the  life-cycle metrics, OSD requested that these programs develop target goals  for each metric within 60 days. In a December 2008 memorandum, OSD  asked the services to begin reporting against the target goals on a quarterly  basis. According to OSD officials, they are working with the services to  improve the accuracy and submission of the reported cost information.
We also previously noted that DOD used immature technologies in  designing its weapon systems, which contributed to reliability problems  and acted as a barrier to using manufacturing techniques that typically  help reduce a system’s maintenance costs. DOD has identified insufficient  reliability designed in the system during acquisition as one of the key  reasons for increases in O&S costs. Based on the recommendation of the  DOD Reliability Improvement Working Group, DOD’s primary acquisition  instruction was updated in 2008 to include guidance directing program  mangers to develop reliability, availability, and maintainability strategies  that include reliability growth as an integral part of design and  development. Further, the instruction states that reliability, availability,  and maintainability shall be integrated within systems engineering  processes; documented in system plans; and assessed during  programmatic reviews.
DOD has also taken steps to improve the information available for cost  estimating and monitoring of actual O&S costs. In 2008, we reported that  for the performance-based logistics arrangements we reviewed, program  offices often did not have detailed cost data that would provide insights  regarding what the program office was spending for various aspects of the  support program. That same year, DOD’s primary acquisition instruction  was updated to include a requirement that sustainment contracts provide  for detailed contractor cost reporting for certain major programs to  improve future cost estimating and price analysis. However, the  instruction does not provide details as to the timing or content of such  cost reporting. Officials in OSD Cost Assessment and Program Evaluation  are currently drafting additional guidance to clarify the cost-reporting  requirement.
Additionally, OSD Cost Assessment and Program Evaluation initiated an  effort in 2008 to collect actual operational testing and evaluation  information and make it available to cost analysts for use in developing  weapon system cost estimates. According to OSD officials, actual test data  could improve these estimates by providing cost analysts more accurate  information. In support of the initiative, the services have collected over  150 test data reports from their operational testing agencies. Although cost  analysis officials indicated that they have not yet used the test data in  preparing cost estimates, there is a high level of interest in the information  contained in the test reports as evidenced by the number of times the data  have been accessed. Officials noted that research is ongoing, particularly  within the Army, to develop quantitative tools that link operational test  results with O&S cost estimates.
section_title: The Services Have Initiatives to Help Them Better Manage Aviation System O&S Costs
paragraphs: The services also identified initiatives to help them better manage aviation  system O&S costs. Although one Army command had an O&S cost- reduction program, none of the services had cost-reduction programs  implemented servicewide. According to Army officials, the most direct  aviation O&S cost-reduction initiative within that service is the Aviation  and Missile Life Cycle Management Command’s O&S Cost Reduction  program. Under the program, the command investigates fielded aviation  systems with high failure rates and high costs and attempts to reduce costs  by funding projects aimed at reliability improvements, life-cycle  extensions, and acquisition cost reductions. According to Army officials,  the annual budget for this program is $10 million to $12 million per year,  and most projects predict at least a 2.5 to 1 return on investment.  Examples of funded projects include developing a fuel additive and  reducing corrosion in CH-47 aircraft blades. Officials also noted that other  Army initiatives during the last several years include a renewed emphasis  on the importance of estimating total life-cycle costs during the weapon  system acquisition process and the establishment of draft guidance for the  inclusion of Operations and Maintenance funding projections within  acquisition program affordability charts used during certain weapon  system acquisition reviews. In addition, the Army conducts annual  weapon systems reviews at which program managers present current and  emerging life-cycle weapon system funding requirements based on the  latest Army or program office cost estimate developed for the system.  Army officials said these initiatives can help the Army in better managing  O&S costs.
While the Navy could not identify initiatives designed specifically to  reduce O&S costs for its aviation systems, Navy officials said the Naval  Aviation Enterprise, a working group of naval aviation stakeholders, was  established in 2004 to meet multiple goals, including exchanging  information to reduce O&S costs. Through cross-functional teams, subject- matter experts collaborate to resolve problems and improve operations.  The Navy stated that, as a result of this initiative, it achieved O&S cost  savings of $50 million from its flying-hour program in fiscal year 2005.  Additionally, Navy officials cited the establishment of Fleet Readiness  Centers as an initiative that could lead to O&S cost reduction in aviation  systems. Created as part of the Base Realignment and Closure process in  2005, the Fleet Readiness Centers aim to improve maintenance efficiency  and reduce costs by combining intermediate- and depot-level maintenance  personnel. As a result, the Navy expects avoidance of unwarranted  maintenance procedures, reduced turnaround times, an increase in  completed repairs, and reduced maintenance costs. Although the Navy is  expected to achieve cost savings from the Fleet Readiness Centers, we  reported in 2007 that the projected savings are likely to be overstated.
The Air Force also lacks initiatives specifically designed to reduce O&S  costs of aviation systems. Air Force officials noted, however, that  improved management of O&S costs could result from its Expeditionary  Logistics for the 21st Century program. The program is a logistics process- improvement effort that was started in 2005 under a larger program called  Air Force Smart Operations for the 21st Century, which is the guiding  program for all transformation efforts within the Air Force. Although one  goal of the program is to reduce O&S costs by 10 percent, Air Force  officials said program initiatives to date do not focus on specific weapon  systems.
section_title: DOD’s Recent Assessment Identified Problems and Recommended Actions to Improve Weapon System Product Support
paragraphs: A DOD Product Support Assessment Team led by the Office the Under  Secretary of Defense for Acquisition, Technology and Logistics recently  concluded a year-long study of weapon system product support, and in  November 2009 issued a report with recommendations to improve weapon  system life-cycle sustainment. With regard to O&S costs, the report cited  inadequate visibility of O&S costs as one of several problems that hinder  weapon system life-cycle support management. According to the report,  DOD does not have adequate visibility of O&S costs; lacks a process to  systematically track and assess O&S costs; and lacks valid, measurable  sustainment metrics to accurately assess how programmatic decisions will  affect life-cycle costs. Further, the report states that DOD cannot identify,  manage, and mitigate major weapon system cost drivers. To address  identified deficiencies in O&S cost management, the Product Support  Assessment Team recommended (1) establishing an O&S affordability  requirement, including linking O&S budgets to readiness, (2) developing  and implementing an affordability process with all DOD stakeholders  (such as the financial and program management communities), and (3)  increasing the visibility of O&S costs and their drivers across the supply  chain.
In addition to the deficiencies identified with regard to O&S cost  management, the Product Support Assessment Team also found  deficiencies in DOD’s sustainment governance. Governance is defined by  the Product Support Assessment Team as the consistent and cohesive  oversight across the management, policies, processes, and decision  making for sustainment to ensure that sustainment information is a critical  component of weapon system acquisition and throughout the life cycle.  The report noted that every programmatic decision made during the life  cycle of a weapon system should be made with the knowledge of how that  decision will affect the life-cycle support of that system. However, the  report stated that this has been difficult within DOD due to the lack of  perceived relative importance of long-term costs and lack of valid,  measurable support metrics, especially cost projections. To address  identified deficiencies in sustainment governance, the Product Support  Assessment Team recommended (1) strengthening guidance so that  sustainment factors are sufficiently addressed and governed at key life- cycle decision points, (2) issuing DOD policy to require the services to  conduct independent logistics assessments prior to acquisition  milestones, and (3) creating a post-initial-operating-capability review that  includes an assessment of known support issues and potential solutions.  OSD has formed three Integrated Product Teams to further develop and  lead the implementation of the Product Support Assessment Team  recommendations over a 3-year period. While the report highlighted some  of the limitations on assessing and managing O&S costs, the current  recommendations do not identify specific actions or enforcement  measures.
One of the first changes resulting from the Product Support Assessment  Team recommendations was a new DOD effort in April 2010 to begin  reviews of sustainment costs for all acquisition category ID weapon  system programs and address sustainment factors at milestone decision  and other review points during the acquisition process. Under new DOD  guidance, program managers for these programs are to use a sustainment  chart to facilitate the reviews and provide information on support strategy,  metrics, and costs in a standardized format. Specifically, the chart should  include the original O&S cost baseline, as reported in the initial Selected  Acquisition Report for the system, as well as current program costs  according to the most recent projections. Further, the current estimated  total O&S costs for the life cycle of the system should also be included,  along with the antecedent system’s cost for comparison.
section_title: No Single Individual or Entity Is Empowered to Control O&S Costs
paragraphs: A related factor that has historically challenged DOD’s ability to reduce  weapon system O&S costs is that no single individual or entity within the  department is empowered to control these costs. A variety of offices  within the services and DOD are involved in the decision making that  affects sustainment. Though DOD has designated the program manager as  responsible for many aspects of weapon system life-cycle sustainment  planning, many decisions and processes are outside of the program  manager’s control. Using aviation systems as an example, these decisions  and processes include budget determination, funding processes, the  number and pay of personnel assigned to support aircraft, the number of  aircraft procured, the number of hours flown, the aircraft basing locations,  and the rates charged by depot maintenance facilities. After the aircraft  are produced, program managers have only a limited ability to directly  affect O&S costs. Army aviation officials, for example, indicated that  during the sustainment phase, program managers control only the budgets  for program-related logistics and engineering support, retrofit  modifications, and technical manuals, which account for only a small  percentage of total O&S costs.
In addition, it is likely that multiple individuals will serve as the weapon  system’s program manager over its life-cycle. For example, the average  tenure for a program manager is roughly 17 months, whereas the average  life of a major weapon system often exceeds 20 years. This turnover  results in program managers bearing responsibility for the decisions of  their predecessors, making it difficult to hold the program manager  accountable for growth in the system’s O&S costs. Finally, a weapon  system’s long life-cycle also affects cost-reduction initiatives, as it may  take many years for some of the initiatives to produce returns on  investment.
section_title: Conclusions
paragraphs: In the absence of key information on O&S costs for its major weapon  systems, DOD may not be well-equipped to analyze, manage, and reduce  these costs. While the military services are required to develop life-cycle  O&S cost estimates to support production decisions, DOD cannot fully  benefit from these estimates if they are not retained. If cost-estimating  best practices are followed, the estimates, among other things, can provide  a benchmark for subsequent cost analysis of that system, enable the  identification of major cost drivers, and aid in improving cost estimating  for future systems. Similarly, in the absence of more complete historical  data on a weapon system’s actual O&S costs in their VAMOSC systems, the  services are not in a good position to track cost trends over time, compare  these actual costs with previous estimates, and determine whether and  why cost growth is occurring. While all the services’ VAMOSC systems  have deficiencies, the Army’s system has the greatest limitations. We  reported on these limitations 10 years ago and recommended  improvements, but the Army has not made significant improvements since  then.
Moreover, without periodically updating life-cycle O&S cost estimates and  documenting program changes affecting O&S costs after a system is  fielded, DOD managers lack information necessary to compare actual  performance to planned or expected results, as stated in federal standards  for internal control. DOD has begun to recognize that greater management  emphasis should be placed on better managing weapon system O&S costs,  as indicated by several current and planned initiatives. The department  furthermore has acknowledged deficiencies in O&S cost visibility and  noted that every programmatic decision made during the entire life cycle  of a DOD weapon system should be made with the knowledge of how that  decision will affect the life-cycle sustainment of that system. Finally, citing  the economic and fiscal challenges the nation faces along with the  prospects for greatly reduced defense budgets, the Secretary of Defense  highlighted the need for DOD to take a more aggressive approach to  reducing its spending and finding efficiencies where possible in order to  better afford its force structure and weapon system modernization  priorities. These competing budget priorities provide additional impetus  for DOD to manage and reduce weapon system O&S costs.
section_title: Recommendations for Executive Action
paragraphs: To improve DOD’s ability to manage and reduce O&S costs of weapon  systems over their life cycle, we recommend that the Secretary of Defense  direct the Under Secretary of Defense for Acquisition, Technology and  Logistics and the Director of OSD Cost Assessment and Program  Evaluation to take the following five actions:    Revise DOD guidance to require the services to retain life-cycle O&S  cost estimates and support documentation used to develop the cost  estimates for major weapon systems. This requirement should apply to  cost estimates developed by weapon system program offices and other  service offices, including cost analysis organizations. Furthermore, this  requirement should include cost estimates prepared during the  acquisition process as well as those prepared after a system is fielded.
Identify the cost elements needed to track and assess major weapon  systems’ actual O&S costs for effective cost analysis and program  management, and require the services to collect and maintain these  elements in their VAMOSC systems. To the extent possible, data  collected on actual O&S costs should be comparable to data presented  in life-cycle cost estimates. To oversee compliance with this new  requirement, DOD should require the services to identify any gaps  where actual cost data are not being collected and maintained and to  identify efforts, along with timelines and resources, for filling these  gaps.
Direct the Army to develop and implement a strategy for improving its  VAMOSC system. This strategy should include plans for incorporating  additional cost elements from other information systems, time frames  for expanding on existing cost elements, and resources required to  improve the VAMOSC system.
Require the services to periodically update their life-cycle O&S cost  estimates for major weapon systems throughout their life cycle. These  updates should provide an assessment of cost growth since the prior  estimate was developed and account for any significant cost and  program changes.
Develop guidance for documenting and retaining historical  information on weapon system program changes to aid in effective  analysis of O&S costs. DOD should determine, in conjunction with  service acquisition and cost analysis officials, the types of information  needed and the level of detail that should be retained.
We also recommend that the Secretary of Defense require that the  Director of OSD Cost Assessment and Program Evaluation retain any  independent life-cycle O&S cost estimates prepared by that office along  with support documentation used to develop these cost estimates for  major weapon systems.
section_title: Agency Comments and Our Evaluation
paragraphs: In its written comments on a draft of this report, DOD generally concurred  with our recommendations, noting that the department is committed to  strengthening its O&S data availability as well as its use of O&S estimates  in the governance process for major defense acquisition programs. DOD  also stated that it will take steps to update its policy to ensure that O&S  cost estimates are retained, along with supporting documentation.  Specifically, the department fully concurred with four recommendations  and partially concurred with two. The department’s written comments are  reprinted in appendix IV. DOD also provided technical comments that we  have incorporated into this report where applicable.
DOD concurred with our four recommendations to revise guidance to  require the services to retain life-cycle O&S cost estimates and support  documentation used to develop the cost estimates; develop guidance for  documenting and retaining historical information on weapon system  program changes to aid in effective analysis of O&S costs; require that the  Director of the Cost Assessment and Program Evaluation retain any  independent life-cycle O&S cost estimates prepared by that office, along  with support documentation used to develop these cost estimates for  major weapon systems; and revise DOD guidance to require the services to  periodically update life-cycle O&S cost estimates for major weapon  systems throughout their life cycle and assess program changes and cost  growth. While DOD concurred with our recommendation to periodically  update life-cycle O&S cost estimates for major weapon systems, the  department noted that the Navy is concerned about the additional cost and  personnel related to this requirement. We maintain that periodic estimates  that quantify and assess changes in weapon systems O&S costs will assist  with the identification of prospective areas for cost reduction and improve  DOD’s ability to estimate O&S costs in the future. Therefore, the resulting  benefits from periodic analysis of O&S costs will likely be greater than the  incremental costs associated with the additional resources.
DOD partially concurred with our recommendation to identify the cost  elements needed to track and assess major weapon systems’ actual O&S  costs for effective cost analysis and program management, require the  services to collect and maintain these elements in their VAMOSC systems,  and require the services to identify elements where actual cost data are  not being collected and maintained, along with efforts for filling these data  gaps. However, the department noted that while DOD will coordinate  internally to address this issue, the Director of the Cost Assessment and  Program Evaluation office should be directed to take this action in lieu of  the Under Secretary of Defense for Acquisition, Technology and Logistics.  DOD’s comments further noted that these two OSD offices would  coordinate with one another to implement other recommendations we  made. We have modified our recommendations to reflect that both the  Under Secretary of Defense for Acquisition, Technology and Logistics and  the Director of the Cost Assessment and Program Evaluation office will  need to play key roles in implementing these recommendations.
DOD also partially concurred with our recommendation that the Army  develop and implement a strategy for improving its VAMOSC system. DOD  stated that while the Army will develop such a strategy, the Army  maintains that its military personnel costs are collected by a separate  database, the Army Military-Civilian Cost System, and although the costs  are not captured by weapon system fleet, the data are sufficient for O&S  cost -estimating purposes. The Army also pointed out that it has made  progress in collecting contractor logistics support cost data. Specifically,  the Army stated that guidance issued in 2008 has led to cost-reporting  requirements (that is, requirements that the contractor provide details  regarding support costs by cost element) being included in new support  contracts. Further, the Army noted that a future information system  should be able to capture contractor support cost data. As we stated in our  report, new Army systems may improve the availability of actual O&S cost  data. However, these systems are still being developed. Even with these  planned information systems, it is unclear what additional O&S cost data  will be collected, how quickly the Army will be able to incorporate the  data into its VAMOSC system, what resources may be needed, or what  additional limitations the service may face in improving its VAMOSC  system. We based our recommendation on DOD guidance regarding the  VAMOSC systems. As we state in our report, DOD required that the O&S  costs incurred by each defense program be maintained in a historical O&S  data-collection system and designated the services’ VAMOSC systems as  the authoritative source for these cost data. Therefore, we continue to  believe the Army needs a strategy for improving the cost data available in  its VAMOSC system.
While generally concurring with our recommendations, DOD’s response  noted that there are over 150 major defense acquisition programs across  the departments and agencies, ranging from missile defense systems to  combat vehicles, with each program having unique challenges in data  reporting. Although DOD agreed that our report was reasonable in its  analysis of the seven programs reviewed, it emphasized that the problems  encountered with our sample may not be found across the entire  department. While we solicited DOD’s and the services’ inputs to try to  avoid selecting weapon systems with known data limitations, we agree  with DOD and our report clearly states that we selected a nonprobability  sample for our review and, therefore, the results cannot be used to make  inferences about all major weapon systems. DOD’s response also noted  that while our report recognizes the recent initiatives the department has  established to track and prevent future O&S cost growth, the effects of  these initiatives are generally not reflected in the systems we analyzed.  According to DOD’s comments, a review of at least one pre–major defense  acquisition program would have allowed us to assess the potential long- term effect of these initiatives with respect to controlling O&S cost  growth. While we agree that a review of the effectiveness of recent  initiatives would be beneficial in the future, many of the initiatives were  only implemented in the last several years and are likely too new to  demonstrate improvements. Further, the scope of our work was limited to  a comparison of the original O&S cost estimates developed for selected  major weapon systems to the actual O&S costs incurred in order to assess  the rate of cost growth. Therefore, we selected systems that had  previously passed through DOD’s acquisition process, achieved initial  operating capability, and been fielded for at least several years. These  systems were not affected by DOD’s recent initiatives.
We are sending copies of this report to interested congressional  committees; the Secretary of Defense; the Secretaries of the Army, the  Navy, and the Air Force; the Under Secretary of Defense for Acquisition,  Technology and Logistics; and the Director, Office of Management and  Budget. In addition, the report will be available at no charge on the GAO  Web site at http://www.gao.gov/.
If you or your staff have any questions concerning this report, please  contact me on (202) 512-8246 or edwardsj@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. Key contributors are listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: To conduct our review of growth in operating and support (O&S) costs for  major weapon systems, we collected and analyzed data on seven major  aviation systems: the Navy’s F/A-18E/F; the Air Force’s F-22A, B-1B, and F- 15E; and the Army’s AH-64D, CH-47D, and UH-60L. We focused on aviation  systems to enable comparisons of cost growth, where possible, across the  selected systems. For example, some factors driving cost growth in an  aviation system may be more applicable to other types of aircraft than to  maritime or land systems. We selected aviation systems that had reached  initial operating capability after 1980 and had incurred several years of  actual O&S costs, indicating a level of maturity in the program. The newest  system in our sample—the F-22A—has been fielded for about 4 years, and  the oldest system—the CH-47D—has been fielded about 17 years. We  limited our selection to aviation systems that had relatively large fleets,  avoiding low-density systems for which cost data may have been  anomalous. We also selected the systems to reflect varied characteristics  in terms of military service, mission, and support strategy. However, we  did not include a Marine Corps aviation system in our sample because the  Naval Air Systems Command manages and supports all Marine Corps  aircraft. We also did not select systems with known limitations of available  data on actual O&S costs. For example, we have previously reported that  some systems supported under performance-based logistics arrangements  may not have detailed cost data available because the Department of  Defense (DOD) has not required the contractor to provide these data. In  considering which systems to select for our review, we also obtained input  from DOD and service officials. The results from this nonprobability  sample cannot be used to make inferences about all aviation systems or  about all major weapon systems because the sample may not reflect all  characteristics of the population.
The following is an overview of each system selected for our review:    The F/A-18E/F Super Hornet is an all-weather attack aircraft as well as  a fighter. It performs a variety of missions including air superiority,  fighter escort, reconnaissance, aerial refueling, close air support, air  defense suppression, and day/night precision strike. The F/A-18E/F  entered full rate production in January 2000 and established initial  operational capability in September 2001. As of the end of fiscal year  2009, the Navy had 358 F/A-18E/F aircraft.
The F-22A Raptor is the Air Force’s newest fighter aircraft and  performs both air-to-air and air-to-ground missions. Officials stated  that the program received approval to enter into full rate production in  April 2005 and established initial operating capability in December  2005. Currently, the Air Force plans to buy 187 F-22A aircraft.
The F-15E Strike Eagle is a dual-role fighter designed to perform air-to- air and air-to-ground missions. Officials indicated that the program  received approval to enter into full rate production in early 1986 and  established initial operating capability in September 1989. As of the  end of fiscal year 2009, the Air Force had 223 F-15E aircraft.
The B-1B Lancer is a multimission long-range bomber designed to  deliver massive quantities (74,000 pounds) of precision and  nonprecision weapons. The Air Force received the first B-1B in April  1985 and established initial operating capability in September 1986. As  of the end of fiscal year 2009, the Air Force had 66 B-1B aircraft.
The AH-64D Apache Longbow is the Army’s heavy division/corps  attack helicopter. It is designed to conduct rear, close, and shaping  missions, as well as distributed operations and precision strikes. In  addition, the AH-64D is designed to provide armed reconnaissance  during day or night, in obscured battlefields, and in adverse weather  conditions. The original Apache entered Army service in 1984, and the  AH-64D followed in 1998. As of the end of fiscal year 2009, the Army  had 535 AH-64D aircraft.
The UH-60L Black Hawk is a twin-engine helicopter that is used in the  performance of the air assault, air cavalry, and aeromedical evacuation  missions. The UH-60L is an update to the original UH-60A, which  entered Army service in 1979. As of the end of fiscal year 2009, the  Army had 564 UH-60L aircraft.
The CH-47D Chinook is a twin-engine, tandem-rotor transport  helicopter that carries troops, supplies, ammunition, and other battle- related cargo. Between 1982 and 1994, the Army upgraded all early  models—the CH-47A, B, and C models—to the CH-47D, which features  composite rotor blades, an improved electrical system, modularized  hydraulics, triple cargo hooks, and more powerful engines. As of the  end of fiscal year 2009, the Army had 325 CH-47D aircraft.
To determine the extent to which (1) life-cycle O&S cost estimates  developed during acquisition and data on actual O&S costs are available  for program management and decision making and (2) DOD uses life-cycle  O&S cost estimates for major weapon systems after they are fielded to  quantify cost growth and identify its causes, we identified available cost  estimates, compared the estimates with actual cost data, and obtained  additional information on how O&S costs are tracked, assessed, managed,  and controlled. We requested documentation from the services and the  Office of the Secretary of Defense (OSD) on life-cycle O&S cost estimates  that the services prepared during acquisition to support the decision to  proceed with production of the aircraft in our sample. We also requested  documentation of O&S cost estimates that OSD may have independently  prepared for this milestone decision. We focused on the production  milestone because, while life-cycle cost estimates may be developed  during earlier stages of the acquisition process, DOD cost-estimating  guidance states that cost estimates for the production milestone should be  based on the current design characteristics of the weapon system, the  latest deployment schedule, and the latest operation and maintenance  concept. In addition, we requested documentation from the services for  any current updates to life-cycle O&S cost estimates that may have been  developed after the systems were fielded. We also obtained information  from weapon system program offices on their practices for retaining  information regarding program changes affecting O&S costs. To identify  requirements for conducting, updating, and retaining cost estimates, we  reviewed Office of Management and Budget guidance, DOD and service  acquisition and cost estimation guidance, and federal guidance on cost - estimating best practices.
For actual historical data on weapon system O&S costs, we obtained  access to the services’ Visibility and Management of Operating and  Support Costs (VAMOSC) systems that have been designated as the  authoritative sources of these data. We worked with service cost analysis  officials to understand how data in these systems are organized and how  to query them for data on our selected aviation systems. To assess the  reliability of the data, we surveyed cost analysis officials. For example, we  obtained information on specific cost elements that were collected, data  sources, and efforts to improve the completeness and accuracy of  collected data. We also reviewed DOD and service guidance on the  VAMOSC systems and cost element structure, and we reviewed prior GAO  and DOD assessments of the availability of actual O&S cost data for DOD  weapon systems. We identified limitations in the data and discuss these in  our report. Taking these limitations into account, we determined that the  available data were sufficiently reliable to compare estimated to actual  costs for the F-22A and F/A-18E/F, the two systems in our sample for  which we were able to obtain the production milestone life-cycle O&S cost  estimate, and also to present an analysis of changes in actual costs over  time for the other five systems.
In comparing estimated to actual costs for the F-22A and the F/A-18E/F,  we analyzed differences that occurred each year, determined which cost  elements experienced the greatest changes over time, and reviewed how  actual program conditions compared to the assumptions used to develop  the production milestone cost estimate. In addition, we met with cost  analysis experts from the Center for Naval Analyses and the Institute for  Defense Analyses and obtained the results of an Institute for Defense  Analysis study on O&S costs for the Air Force’s C-17 aircraft that had been  prepared at the request of the Office of the Under Secretary of Defense for  Acquisition, Technology and Logistics. For the five weapon systems in our  sample where production milestone life-cycle O&S cost estimates were  unavailable, we obtained and analyzed data on actual O&S costs from the  services’ VAMOSC systems. This analysis was subject to the limitations in  the data that we identified for each of the services’ VAMOSC systems, as  discussed in the report. We met with officials responsible for each selected  weapon system to discuss issues related to the management of the  program and cost trends. In our analysis of O&S costs, we have adjusted  DOD data to reflect constant fiscal year 2010 dollars, unless otherwise  noted. Throughout this report, all percentage calculations are based on  unrounded numbers.
To identify efforts taken by DOD to reduce O&S costs, we interviewed  cognizant OSD and service officials involved in weapon system  acquisition, logistics, and program management. For specific initiatives,  we obtained documents that described their objectives, time frames, and  other information. In addition, we obtained and reviewed pertinent  guidance on performance management and internal control practices in  the federal government. We also reviewed a report issued in November  2009 by the DOD Product Support Assessment Team. Finally, we also  consulted prior O&S studies performed by DOD, the services’ audit  entities, and GAO.
During our review, we conducted work at the DOD and service offices as  shown in table 4 (located in the Washington, D.C., area unless indicated  otherwise).
We conducted this performance audit from June 2009 through July 2010 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.
section_title: Appendix II: Results of OSD-Sponsored Analysis of C-17 Aircraft
paragraphs: This appendix provides further information on an Office of the Secretary  of Defense–sponsored study of operating and support (O&S) cost growth  for the Air Force’s C-17 aircraft. The Institute for Defense Analyses (IDA)  conducted the study for the Office of the Under Secretary of Defense for  Acquisition, Technology and Logistics. According to an IDA analyst, the  study began in 2007 and was completed in April 2009. We did not evaluate  the study’s methodology, results, or conclusions.
The intent of the study was to demonstrate various analytic methods for  monitoring major weapon system reliability, maintainability, availability,  and O&S costs against baseline targets throughout the life cycle. IDA  obtained O&S cost estimates developed by the Air Force during the  acquisition of the C-17, compared them to actual fiscal year 2009 O&S  costs (estimated using DOD’s recommended cost element structure), and  developed an updated life-cycle cost estimate using actual O&S cost data.  In its report, IDA showed that the C-17’s estimated life-cycle O&S costs  increased from $91.6 billion to $118.1 billion (29 percent) from 1985  through 2009. The estimated cost growth occurred despite a decrease in  the total aircraft inventory from a projected 210 down to an actual total of  190. Further, the study reported that the C-17’s cost per flight hour  increased 43 percent from an estimated $13,989 in 1985 to an estimated  $19,995 in 2009. According to the study, major cost drivers were fuel  consumption, materials and supplies, repair parts, airframe overhaul,  engine overhaul, and sustaining engineering/program management.
According to IDA’s report, the C-17 program experienced changes during  and after acquisition that affected the comparison of the updated O&S cost  estimates—developed using actual O&S costs—to the originally estimated  O&S costs. The report grouped the factors that caused O&S cost growth  into three categories: internal program factors, external program factors,  and accounting factors.
According to an IDA analyst involved with the study, variances due to  internal program factors are defined as those that were influenced by  the aircraft’s program managers. Such factors identified in the study  included system design, reliability, and maintenance support concepts.  For example, the report noted that the C-17 transitioned from planned  government-provided support to contractor logistics support, and this  change greatly complicated the analysis and became a major aspect of  the study. IDA attributed cost increases for sustaining  engineering/program management, contractor field service  representatives, contractor training support, and engine depot- maintenance costs to this change in support concept. Further, the C- 17’s airframe weight increased during development, which led to  increased fuel consumption and higher fuel costs. Finally, system  modifications increased in scope, which led to additional cost  increases.
Changes in costs due to external program factors are defined as those  that were generally beyond the control of program managers,  according to the IDA analyst. These factors included changes to  system quantities or delivery schedules, basing and deployment plan  changes, and higher system-operating tempos due to contingencies.  For example, the change from 210 to 190 aircraft reduced total costs; a  change to the mix of active and reserve units from 73 percent active to  90 percent active increased costs; and personnel costs increased due  to growth in incentive pay, housing, and medical care costs.
Finally, according to the IDA analyst, variances from accounting  factors are defined as those that resulted from differences in the way  costs were categorized over time. Accounting factor changes that  affected C-17 O&S costs included a change in the scope of DOD’s  indirect costs; changes in personnel accounting; and changes to the  timing of the weapon system’s phase-in, steady state, and phase-out  periods.
On the basis of its C-17 analysis, IDA concluded that any mechanism to  track and assess weapon system O&S costs against baseline estimates  would require a systematic and institutional methodology that does not  currently exist within DOD. According to the report, the methodological  approach that was used in the study was ad hoc, labor intensive, and  dependent on analyst judgment. The study suggested that, in the absence a  more systematic, institutional methodology, DOD could instead track  major O&S cost drivers—such as reliability, fuel consumption,  maintenance manning per aircraft, and dollars per airframe overhaul.  However, the exact metrics DOD used would depend on how the  department plans to use the data in managing the O&S costs of its weapon  systems and how the data would be used in decision making.
section_title: Appendix III: Analysis of Changes between Estimated and Actual O&S Costs for the Navy’s F/A-18E/F
paragraphs: This appendix provides a detailed breakdown, by cost element, of total  estimated and actual operating and support (O&S) costs for the Navy’s  F/A-8E/F for the period of fiscal years 1999 through 2009 (see table 5). The  estimated costs were obtained from the Navy’s O&S life-cycle cost  estimates prepared for the 1999 production milestone. Data on actual O&S  costs were obtained from the Navy’s Visibility and Management of  Operating and Support Costs (VAMOSC) system.
section_title: Appendix IV: Comments from the Department of Defense
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact name above, the following staff members made  key contributions to this report: Tom Gosling, Assistant Director; Tracy  Burney; Sandra Enser; Kevin Keith; James Lackey; Charles Perdue;  Richard Powelson, Janine Prybyla; Jennifer Spence; and Alyssa Weir.
section_title: Related GAO Products
paragraphs: Joint Strike Fighter: Additional Costs and Delays Risk Not Meeting  Warfighter Requirements on Time. GAO-10-382. Washington, D.C.: March  19, 2010.
Defense Acquisitions: Assessments of Selected Weapon Programs.  GAO-10-388SP. Washington, D.C.: March 30, 2010.
Littoral Combat Ship: Actions Needed to Improve Operating Cost  Estimates and Mitigate Risks in Implementing New Concepts.  GAO-10-257. Washington, D.C.: February 2, 2010.
Defense Acquisitions: Army Aviation Modernization Has Benefited from  Increased Funding but Several Challenges Need to be Addressed.  GAO-09-978R. Washington, D.C.: September 28, 2009.
Defense Acquisitions: Assessments Needed to Address V-22 Aircraft  Operational and Cost Concerns to Define Future Investments.  GAO-09-482. Washington, D.C.: May 11, 2009.
GAO Cost Estimating and Assessment Guide: Best Practices for  Developing and Managing Capital Program Costs. GAO-09-3SP.  Washington, D.C.: March 2009.
Defense Logistics: Improved Analysis and Cost Data Needed to Evaluate  the Cost-effectiveness of Performance Based Logistics. GAO-09-41.  Washington, D.C.: December 19, 2008.
Missile Defense: Actions Needed to Improve Planning and Cost  Estimates for Long-Term Support of Ballistic Missile Defense.  GAO-08-1068. Washington, D.C.: September 25, 2008.
Defense Acquisitions: Fundamental Changes Are Needed to Improve  Weapon Program Outcomes. GAO-08-1159T. Washington, D.C.: September  25, 2008.
Military Base Closures: Projected Savings from Fleet Readiness Centers  Likely Overstated and Actions Needed to Track Actual Savings and  Overcome Certain Challenges. GAO-07-304. Washington, D.C.: June 29,  2007.
Air Force Depot Maintenance: Improved Pricing and Cost Reduction  Practices Needed. GAO-04-498. Washington, D.C.: June 17, 2004.
Military Personnel: Navy Actions Needed to Optimize Ship Crew Size  and Reduce Total Ownership Costs. GAO-03-520. Washington, D.C.: June  9, 2003.
Best Practices: Setting Requirements Differently Could Reduce Weapon  Systems’ Total Ownership Costs. GAO-03-57. Washington, D.C.: February  11, 2003.
Defense Logistics: Opportunities to Improve the Army’s and the Navy’s  Decision-making Process for Weapons System Support. GAO-02-306.  Washington, D.C.: February 28, 2002.
Defense Acquisitions: Navy and Marine Corps Pilot Program Initiatives  to Reduce Total Ownership Costs. GAO-01-675R. Washington, D.C.: May  22, 2001.
Defense Acquisitions: Higher Priority Needed for Army Operating and  Support Cost Reduction Efforts. GAO/NSIAD-00-197. Washington, D.C.:  September 29, 2000.
Defense Acquisitions: Air Force Operating and Support Cost Reductions  Need Higher Priority. GAO/NSIAD-00-165. Washington, D.C.: August 29,  2000.
Financial Systems: Weaknesses Impede Initiatives to Reduce Air Force  Operations and Support Costs. GAO/NSIAD-93-70. Washington, D.C.:  December 1, 1992.
Navy Fielded Systems: Operating and Support Costs Not Tracked.  GAO/NSIAD-90-246. Washington, D.C.: September 28, 1990.