Defense Acquisitions: Joint Action Needed by DOD and Congress to Improve Outcomes
Published: 2015-10-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD's acquisition of major weapon systems has been on GAO's high risk list since 1990. Over the years, Congress and DOD have continually explored ways to improve acquisition outcomes, including reforms that have championed sound management practices, such as realistic cost estimating, prototyping, and systems engineering. Too often, GAO reports on the same kinds of problems today that it did over 20 years ago.
This testimony discusses (1) the performance of the current acquisition system; (2) the role of a sound business case in getting better acquisition outcomes; (3) systemic reasons for persistent problems; and (4) thoughts on actions DOD and Congress can take to get better outcomes from the acquisition process. This statement draws from GAO's extensive body of work on DOD's acquisition of weapon systems and the numerous recommendations GAO has made on both individual weapons and systemic improvements to the acquisition process.
section_title: What GAO Found
paragraphs: U.S. weapon acquisition programs often take significantly longer, cost more than promised and deliver fewer quantities and capabilities than planned. It is not unusual for time and money to be underestimated by 20 to 50 percent. As the Department of Defense (DOD) is investing $1.4 trillion to acquire over 75 major weapon systems as of March 2015, cost increases of this magnitude have sizeable effects. When costs and schedules increase, the buying power of the defense dollar is reduced. Beyond the resource impact, consequences include the warfighter receiving less capability than promised, weapons performing not as well as planned and being harder to support, and trade-offs made to pay for cost increases—in effect, opportunity costs—not being made explicit.
GAO's work shows that establishing a sound business case is essential to achieving better program outcomes. A program should not go forward without a sound business case. A solid, executable business case provides credible evidence that (1) the warfighter's needs are valid and that they can best be met with the chosen concept, and (2) the chosen concept can be developed and produced within existing resources—such as technologies, design knowledge, funding, and time. Establishing a sound business case for individual programs depends on disciplined requirements and funding processes, and calls for a realistic assessment of risks and costs; doing otherwise undermines the intent of the business case and makes the above consequences likely.
Yet, business cases for many new programs are deficient. This is because there are strong incentives within the acquisition culture to overpromise a prospective weapon's performance while understating its likely cost and schedule demands. Thus, a successful business case is not necessarily the same as a sound one. Competition with other programs for funding creates pressures to overpromise. This culture is held in place by a set of incentives that are more powerful than policies to follow best practices. Moreover, the budget process calls for funding decisions before sufficient knowledge is available to make key decisions. Complementing these incentives is a marketplace characterized by a single buyer, low volume, and limited number of major sources. Thus, while it is tempting to describe the acquisition process as broken, it is more instructive to view it as in equilibrium: one in which competing forces consistently lead to starting programs with slim chances of being delivered on time and within cost.
Over the years, GAO has identified a number of reforms aimed at improving acquisition outcomes. Several of those are particularly relevant to changing the acquisition culture and will take the joint efforts of Congress and DOD:
Ensure that new programs exhibit desirable principles before funding is approved.
Identify significant program risks up front and allot sufficient resources.
More closely align budget and program decisions.
Mature technology before including it in product development.
Develop system engineering and program manager capacity—sufficient personnel with appropriate expertise and skills.

section_title: Letter
paragraphs: I am pleased to be here today to discuss weapon systems acquisition  reform. Weapon systems acquisition has been on GAO’s high risk list  since 1990. Over the years, Congress and the Department of Defense  (DOD) have explored ways to improve acquisition outcomes, including  recent actions like the Weapon Systems Acquisition Reform Act of 2009  and the department’s own “Better Buying Power” initiatives. These and  other reforms have championed sound management practices, such as  realistic cost estimating, prototyping, and systems engineering. DOD’s  declining budgets and the impact of sequestration have lent additional  impetus to reduce the costs of weapons. While some progress has been  made on this front, too often we report on the same kinds of problems  today that we did over 20 years ago.
Today, I will discuss (1) the performance of the current acquisition  system; (2) the role of a sound business case in getting better acquisition  outcomes; (3) systemic reasons for persistent problems; and (4) thoughts  on actions DOD and Congress can take to get better outcomes from the  acquisition process. This statement draws from our extensive body of  work from 1990 until October 2015 on DOD’s acquisition of weapon  systems and the numerous recommendations we have made both on  individual weapons and systemic improvements to the acquisition  process. The work on which this testimony is based was conducted 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 the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Problematic Acquisitions Continue
paragraphs: DOD has a mandate to deliver high-quality products to warfighters when  they need them and at a price the country can afford. Quality and  timeliness are especially critical to maintain DOD’s superiority over  others, to counter quickly changing threats, and to better protect and  enable the warfighter.
U.S. weapons are the best in the world, but the programs to acquire them  frequently take significantly longer and cost more money than promised  and often deliver fewer quantities and capabilities than planned. It is not  unusual for time and money to be underestimated by 20 to 50 percent.  Considering that DOD is investing $1.4 trillion to acquire over 75 major  weapon systems as of March 2015, cost increases of this magnitude  have sizeable effects. Typically, when costs and schedules increase, the  buying power of the defense dollar is reduced. Consequences associated  with this history of acquisition include:  the warfighter gets less capability than promised; weapons perform well, but not as well as planned and are harder to  trade-offs made to pay for cost increases—in effect, opportunity  costs—are not explicit.
This state of weapon acquisition is not the result of inattention. Many  reforms have been instituted over the past several decades, but the  above outcomes persist. DOD is in the midst of a series of “Better Buying  Power” initiatives begun in June 2010 that have resulted in some  improvements, but it is too early to assess their long term impact.
section_title: Key to Better Acquisition Outcomes: Better Business Cases
paragraphs: The decision to start a new program is the most highly leveraged point in  the product development process. Establishing a sound business case for  individual programs depends on disciplined requirements and funding  processes. A solid, executable business case provides credible evidence  that (1) the warfighter’s needs are valid and that they can best be met  with the chosen concept, and (2) the chosen concept can be developed  and produced within existing resources—that is, proven technologies,  design knowledge, adequate funding, and adequate time to deliver the  product when it is needed. A program should not go forward into product  development unless a sound business case can be made. If the business  case measures up, the organization commits to the development of the  product, including making the financial investment.
At the heart of a business case is a knowledge-based approach to  product development that is both a best practice among leading  commercial firms and the approach reflected in DOD’s acquisition  regulations. For a program to deliver a successful product within available  resources, managers should demonstrate high levels of knowledge  before significant commitments are made. In essence, knowledge  supplants risk over time. Establishing a business case calls for a realistic  assessment of risks and costs; doing otherwise undermines the intent of  the business case and invites failure. This process requires the user and  developer to negotiate whatever trade-offs are needed to achieve a  match between the user’s requirements and the developer’s resources  before system development begins. Key enablers of a good business  case include:
Firm, Feasible Requirements: requirements should be clearly defined,  affordable, and clearly informed—thus tempered—by systems  engineering; once programs begin, requirements should not change  without assessing their potential disruption to the program.
Mature Technology: science and technology organizations should  shoulder the technology development burden, proving technologies  can work as intended before they are included in a weapon system  program. The principle here is not to avoid technical risk but rather  take risk early and resolve it ahead of program start.
Incremental, Knowledge-based Acquisition Strategy: rigorous systems  engineering coupled with more achievable requirements are essential  to achieve faster delivery of needed capability to the warfighter.  Building on mature technologies, such a strategy provides time,  money, and other resources for a stable design, building and testing  of prototypes, and demonstration of mature production processes.
Realistic Cost Estimate: sound cost estimates depend on a  knowledge-based acquisition strategy, independent assessments, and  sound methodologies.
section_title: Cultural Incentives Undermine Business Cases
paragraphs: An oft-cited quote of David Packard, former Deputy Secretary of Defense,  is: “We all know what needs to be done. The question is why aren’t we  doing it?”
We need to look differently at the familiar outcomes of weapon systems  acquisition—such as cost growth, schedule delays, large support  burdens, and reduced buying power. Some of these undesirable  outcomes are clearly due to honest mistakes and unforeseen obstacles.  However, they also occur not because they are inadvertent but because  they are encouraged by the incentive structure. It is not sufficient to define  the problem as an objective process that is broken. Rather, it is more  accurate to view the problem as a sophisticated process whose  consistent results are indicative of its being in equilibrium. The rules and  policies are clear about what to do, but other incentives force  compromises. The persistence of undesirable outcomes such as cost  growth and schedule delays suggests that these are consequences that  participants in the process have been willing to accept. These undesirable  outcomes share a common origin: decisions are made to move forward  with programs before the knowledge needed to reduce risk and make  those decisions is sufficient. There are strong incentives within the  acquisition culture to overpromise a prospective weapon’s performance  while understating its likely cost and schedule demands. Thus, a  successful business case—one that enables the program to gain  approval—is not necessarily the same as a sound one.
Incentive to overpromise: The weapon system acquisition culture in  general rewards programs for moving forward with unrealistic business  cases. Strong incentives encourage deviations from sound acquisition  practices. In the commercial marketplace, investment in a new product  represents an expense. Company funds must be expended and will not  provide a return until the product is developed, produced, and sold. In  DOD, new products represent revenue, in the form of a budget line. A  program’s return on investment occurs as soon as the funding decision is  made. Competition with other programs vying for defense dollars puts  pressure on program sponsors to project unprecedented levels of  performance (often by counting on unproven technologies) while  promising low cost and short schedules. These incentives, coupled with a  marketplace that is characterized by a single buyer (DOD), low volume,  and limited number of major sources, create a culture in weapon system  acquisition that encourages undue optimism about program risks and  costs.
Program and Funding Decisions: Budget requests, Congressional  authorizations, and Congressional appropriations are often made well in  advance of major program decisions, such as the decision to approve the  start of a program. At the time these funding decisions are made, less  verifiable knowledge is available about a program’s cost, schedule, and  technical challenges. This creates a vacuum for optimism to fill. When the  programmatic decision point arrives, money is already on the table, which  creates pressure to make a “go” decision prematurely, regardless of the  risks now known to be at hand.
Budgets to support major program commitments must be approved well  ahead of when the information needed to support the decision is  available. Take, for example, a decision to start a new program scheduled  for August 2016. The new program would have to be included in the  Fiscal Year 2016 budget. This budget request would be submitted to  Congress in February 2015—18 months before the program decision  review is actually held. It is likely that the requirements, technologies, and  cost estimates for the new program—essential to successful execution— may not be very solid at the time of funding decisions. Once the hard- fought budget debates result in funds being appropriated for the program,  it is very hard to take it away later, when the actual program decision  point is reached.
To be sure, this is not to suggest that the acquisition process is foiled by  bad actors. Rather, program sponsors and other participants act rationally  within the system to achieve goals they believe in. Competitive pressures  for funding simply favor optimism in setting cost, schedule, technical, and  other estimates.
Insufficient Business Cases Are Sanctioned by Funding Approvals: To the  extent Congress approves funds for such programs as requested, it  sanctions—and thus rewards—optimism and unexecutable business  cases. Funding approval—authorizing programs and appropriating  funds—is one of the most powerful oversight tools Congress has. The  reality is once funding starts, other tools of oversight are relatively weak— they are no match for the incentives to overpromise.
So, if funding is approved for a program despite having an unrealistic  schedule or requirements, that decision reinforces those characteristics  instead of sound acquisition practices. Pressure to make exceptions for  programs that do not measure up are rationalized in a number of ways:  an urgent threat needs to be met; a production capability needs to be  preserved; despite shortfalls, the new system is more capable than the  one it is replacing; and the new system’s problems will be fixed in the  future. It is the funding approvals that ultimately define acquisition policy.
Recently, I testified before the Senate Armed Services Committee on the  Ford Class Aircraft Carrier. We reported in 2007 that ship construction  was potentially underestimated by 22 percent, critical technologies were  immature, and schedules were likely to slip. In other words, the carrier did  not have a good business case. Nonetheless, funding was approved as  requested. Today, predicted cost increases have occurred, the  technologies have slipped nearly 5 years, and the program schedule has  been delayed. Notably, the carrier represents a typical program without a  good business case and its outcomes of cost increases and schedule  delays are not unique. Funding approvals rewarded the unrealistic  business case, reinforcing its success rather than that of a sound  business case.
section_title: What to Do
paragraphs: Since 1990, GAO has identified a number of reforms aimed at improving  acquisition outcomes. Several of those are particularly relevant to  changing the acquisition culture and will take the joint efforts of Congress  and DOD.
Reinforce desirable principles at the start of new programs: The principles  and practices programs embrace are determined not by policy, but by  decisions. These decisions involve more than the program at hand: they  send signals on what is acceptable. If programs that do not abide by  sound acquisition principles receive favorable funding decisions, then  seeds of poor outcomes are planted. The challenge for decision makers  is to treat individual program decisions as more than the case at hand.  They must weigh and be accountable for the broader implications of what  is acceptable or “what will work” and be willing to say no to programs that  run counter to best practices. The greatest point of leverage is at the start  of a new program. Decision makers must ensure that new programs  exhibit desirable principles before funding is approved. Programs that  present well-informed acquisition strategies with reasonable and  incremental requirements and reasonable assumptions about available  funds should be given credit for a good business case. Every year, there  is what one could consider a “freshman” class of new acquisitions. This is  where DOD and Congress must ensure that they embody the right  principles and practices, and make funding decisions accordingly.
Identify significant program risks upfront and resource them: Weapon  acquisition programs by their nature involve risks, some much more than  others. The desired state is not zero risk or elimination of all cost growth.  But we can do better than we do now. The primary consequences of risk  are often more time and money and unplanned—or latent—concurrency  in development, testing, and production. Yet, when significant risks are  taken, they are often taken under the guise that they are manageable and  that risk mitigation plans are in place. Such plans do not set aside time  and money to account for the risks taken. Yet in today’s climate, it is  understandable—any sign of weakness in a program can doom its  funding. Unresourced risk, then, is the “spackle” of the acquisition system  that enables the system to operate. This needs to change. If programs  are to take significant risks, whether they are technical in nature or related  to an accelerated schedule, these risks should be declared and the  resource consequences acknowledged and provided. Less risky options  and potential off-ramps should be presented as alternatives. Decisions  can then be made with full information, including decisions to accept the  risks identified. If the risks are acknowledged and accepted by DOD and  Congress, the program should be supported.
More closely align budget decisions and program decisions: Requesting  funding for programs 18 or so months ahead of when they will need it  stems from a budgeting and planning process intended to make sure  money is available in the future. Ensuring that programs are thus  affordable is a sound practice. But, DOD and Congress need to explore  ways to bring funding decisions closer in alignment with program  decisions. This will require more thought and study. The alternative is that  DOD and Congress will have to hold programs accountable for sound  business cases at the time funding is approved, even if it is 18 months in  advance of the program decision.
Separate Technology Development from Product Development: Leading  commercial companies minimize problems in product development by  separating technology development from product development and fully  developing technologies before introducing them into the design of a  system. These companies develop technology to a high level of maturity  in a science and technology environment which is more conducive to the  ups and downs normally associated with the discovery process. This  affords the opportunity to gain significant knowledge before committing to  product development and has helped companies reduce costs and time  from product launch to fielding. Although DOD’s science and technology  enterprise is engaged in developing technology, there are organizational,  budgetary, and process impediments which make it difficult to bring  technologies into acquisition programs. For example, it is easier to move  immature technologies into weapon system programs because they tend  to attract bigger budgets than science and technology projects. Stronger  and more uniform incentives are needed to encourage the development  of technologies in the right environment to reduce the cost of later  changes, and encourage the technology and acquisition communities to  work more closely together to deliver the right technologies at the right  time.
Develop system engineering and program manager capacity: Systems  engineering expertise is essential throughout the acquisition cycle, but  especially early when the feasibility of requirements are being  determined, the technical and engineering demands of a design are being  understood, and when an acquisition strategy for conducting production  development is laid out. DOD has fallen short in its attempts to fill  systems engineering positions. These positions should be filled and their  occupants involved and empowered early to help get programs on a good  footing—i.e., a good business case—from the start. Program managers  are essential to the success of any program. Program managers handed  a program with a poor business case are not put in a position to succeed.  Even with a good business case, program managers must have the skill  set, business acumen, tenure, and career path to make programs  succeed and be rewarded professionally. DOD has struggled to create  this environment for program managers.
section_title: Concluding Remarks
paragraphs: Describing the current acquisition process as “broken” is an  oversimplification, because it implies that it can merely be “fixed”. The  current process, along with its outcomes, has been held in place by a set  of incentives—a culture—that has been resistant to reforms and fixes.  Seen instead as a process in equilibrium, it is clear that changing it  requires a harder, long-term effort by both DOD and Congress. There  have been a number of recent reforms directed at DOD. Congress shares  responsibility for the success of these reforms in the actions it takes on  funding programs, specifically by creating enablers for sound business  cases, and creating disincentives for programs that do not measure up.
Chairman Thornberry, Ranking Member Smith, and Members of the  Committee, this concludes my statement and I would be happy to answer  any questions.
section_title: GAO Contact and Staff Acknowledgements
paragraphs: If you or your staff has any questions about this statement, please contact  Paul L. Francis at (202) 512-4841 or FrancisP@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this statement. GAO staff who made key  contributions to this testimony are David Best, Assistant Director; R. Eli  DeVan; Laura Greifner; and Alyssa Weir.
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