The Pentagon’s April 2010 SAR
If you want to keep track of key Pentagon programs, Selected Acquisition Reports are an important resource. Shortly after the defense budget is submitted, the Pentagon releases details on major defense acquisition program cost, schedule, and performance changes on a periodic basis, summarizing the latest estimates of a major program’s cost, schedule, and technical status. Quarterly SARs are submitted for initial reports, final reports, and for programs that are rebaselined at major milestone decisions. Subsequent quarterly exception reports are required only for those programs experiencing unit cost increases of at least 15%, or schedule delays of at least 6 months.
There are a number of ways programs can fall into a SAR report. The most routine is when their program baseline is first entered into the SAR set. The most troubling path to re-appearance involves technical development difficulties and/or cost spirals on the contractor’s end. The most benign re-appearance happens when the US military orders more units than it had planned to, something that would normally be seen as success. Cuts can also trigger a SAR report appearance, however, as the same number of research dollars are divided across fewer units produced. In a similar vein, self-inflicted “cost-cutting” schedule delays may save money in one budget year, but the actions they force often increase overall program costs, and may show up in a SAR. The April 2010 SAR, which tracks programs to the end of December 2009, has an interesting motif.
April 2010 SAR: Totals and New Arrivals
The trend that jumps out from the April 2010 SAR is how many programs owe their appearance largely to increases in the number of units bought. Before we begin, however, note that “total program cost estimates” provided in the SARs include research and development, procurement, military construction, and acquisition-related operation and maintenance (except for pre-Milestone B programs, which are development costs only). Total program costs reflect actual costs to date, as well as future anticipated costs, and include anticipated inflation allowances.
The April 2010 SAR report tracks 87 programs, with as combined lifetime value of $1.61 trillion. That includes $74.82 billion for the following programs, whose initial baselines were added to the list:
- AMF JTRS (Airborne and Maritime Fixed Joint Tactical Radio System)
- ASIP (Airborne Signals Intelligence Payload, will fly on platforms including Global Hawk UAVs)
- BAMS (RQ-4N Broad Area Maritime Surveillance, Global Hawk UAV derivative)
- IAMD (Integrated Air and Missile Defense)
- INC 1 E-IBCT (Early Future Combat Systems fielding)
- JHSV (Army/Navy Joint High Speed Vessel fast catamarans)
- JPALS (Joint Precision Approach and Landing System, uses GPS)
- MQ-1C ER/MP “SkyWarrior” Army UAV
- MQ-1B Predator (though the USAF has generally shifted its future orders to…)
- MQ-9 Reaper UAV
- WIN-T INC 3 (Warfighter Information Network-Tactical Increment 3)
For the December 2009 reporting period that corresponds to the April 2010 SAR, there is a net cost increase of $107.24 billion or 7.2%, for the programs that have reported previously. A net increase in planned quantities accounts for $44.85 billion, or about 41.8%, of that increase. It is still surpassed by total program cost increases of $51.34 billion across all programs tracked, but it’s a much closer balance than usual. A $25.43 billion increase in support requirements can be driven in part by more platforms to support, as well as by platforms that just prove more expensive to field and maintain. Net stretch-outs of development and procurement schedules, be they self-inflicted or due to technical difficulties, add another $8.97 billion, with most of that coming from one program.
Critical Cost Breaches
These are the most serious, and involve per-unit cost increases of 25% to the current baseline, or of 50% or more to the original baseline. Programs in this department include the
Pursuant to section 2433 of title 10, United States Code, Congressional notifications are required, as well as detailed unit cost breach information in the SAR. For those programs with critical breaches, notifications and unit cost breach information are also required. In addition a certification determination to continue by the Under Secretary of Defense for Acquisition, Technology & Logistics must be made no later than June 1, 2010.
Of these entries, the AH-64D Apache Longbow Block III attack helicopter is on the list because the Army is buying more. That means new-built machines, as opposed to less-expensive helicopters upgraded and re-manufactured from existing fleet helicopters.
The Wideband Gapfiller SATCOM makes the list because of a combination of changes in the commercial space field, and late decisions by the US military to add more. Those late decisions means that WGS will have seen its production line restart twice, while also incurring all costs associated with replacing electronic parts that are no longer made.
The 14,500t DDG-1000 Zumwalt Class “destroyer”, ATIRCM/CMWS aircraft missile warning & defensive systems, and WLD-1 Remote Minehunting Systems made the list because the US military is buying fewer of them, which changes how R&D dollars are spread. The WLD-1s and ATIRCM CMWS also have technical issues that contribute to rising costs.
The F-35 Joint Strike Fighter will attract the most attention, as it is the largest and most consequential program in this SAR. Excerpt:
“Specifically, in 2001, the average procurement unit cost for the JSF was estimated at $50 million base year 2002 dollars or $59 million in base year 2010 dollars. This is now estimated to fall within a range of $79 million to $95 million in base year 2002 dollars or $93 million to $112 million in base year 2010 dollars. This is a 57% to 89% increase from the original baseline. The reasons for the Unit Cost Growth included larger-than-planned development costs driven by Short Take-Off and Vertical Landing (STOVL) variant weight growth and a longer forecasted development schedule; increase in labor and overhead rates; degradation of airframe commonality; lower production quantities; increases in commodity prices (particularly titanium); major subcontractor cost growth; and the impact of revised inflation indices. In addition, factors that were driven by substantially higher contractor change traffic (i.e., changes in design not resulting from changes in requirements or capability), which led to increased engineering and software staffing; extended manufacturing span times; and delayed delivery of aircraft to flight test, led to a further slip of the development and flight test program”
Other Cost Increases Reported
In the “we want more!” category, the following platforms have their reports primarily driven by a rise in orders. In some cases, this is simply recognition of orders that have already been placed. It others, it reflects future plans. The Pentagon’s release goes into more detail for each platform, and more units ordered is often accompanied by other forms of unrelated cost growth. For items on this list, however, the increase in numbers ordered or planned is the largest driver of higher program costs. To the AH-64D Block III, we add:
- AEHF high-bandwidth secure communications satellites
- AIM-120 AMRAAM air-to-air missiles
- AH-64D Apache Longbow Block II attack helicopters
- BGM-109 Block IV Tactical Tomahawk cruise missiles
- C-17A strategic transport aircraft
- C-130J Super Hercules tactical transport aircraft
- CH-53K heavy transport helicopter
- DDG-51 Arleigh Burke class destroyers
- Global Broadcast Service, related to WGS
- F/A-18 E/F Super Hornet naval fighters; and the related EA-18G Growler electronic attack fighters
- JTRS HMS small/man-portable radios
- LHA-R America Class amphibious assault escort carriers
- LPD-17 San Antonio Class amphibious assault ships
- MH-60R naval helicopters
- MRAP program for blast-resistant vehicles
- P-8A Poseidon sea control aircraft
- RQ-4 Global Hawk HALE UAV; note also related systems entered as new baselines: BAMS, ASIP
- SBIRS-High ballistic missile launch surveillance satellites
- T-AKE fleet supply ships
- WIN-T Increment 2 communications system
Programs that are seeing increases driven primarily by other factors include:
- AGM-154C JSOW (upgrades)
- F-22A Raptor fighter (more costly modernization, mostly)
- Littoral Combat Ship
- SM-6 ERAM naval air defense missile
This is a much smaller category. That isn’t always so, but the number of program cancellations is lower than some past SARs.
NOPESS polar-orbiting weather satellites made the list because the military is ending joint procurement, but NASA and the Department of Commerce are expected to continue with it, supplmented by a European system called MetOp.
The C-5 Avionics Modernization Program made the SAR again. After seeing the full C-5 AMP/REP program split, with only about 1/3 of the fleet receiving the full modifications, the lesser C-5 AMP program sees a further reduction from 112 to 92 planes.
The “take a bow” success stories include Chemical demilitarization, which reduced program costs by doing better than expected, and the Army’s JTRS Ground Mobile Radio – but a production stretch-out will offset over a third of the Army’s JTRS GMR program gains.
Special cases include:
Ballistic Missile Defense System. Overall reduction, but it doesn’t seem like it. Cancellation of Kinetic Energy Interceptor missile and Multiple Kill Vehicle Program, Airborne Laser 747, STSS follow-on surveillance satellite constellation, general infrastructure reductions, GMD-Europe. Aegis-Ashore SM-3 deployments and testing costs added. That net is a reduction. On the other hand, the SAR added over $23 billion in combined pre-Milestone B R&D work, and BMDS-related military construction costs, into this entry, per Congressional direction. They aren’t considered to be cost increases, but the result is a sharply higher total than previous reports.
C-130 Avionics Modernization. Reported a “significant” cost breach of 15-25% rise in unit costs. The factors at work here are complex, and not contractor-driven. The entire program faces a pending go/no-go decision:
“The PAUC increased 7.3% and the APUC increased 17.9% to the current APB because the program amended its strategy to provide for depot installs during the Future Years Defense Program (FYDP) and amended its estimate for the level of spares. It also added costs for training systems not previously included, adjusted for current inflation indices, and incurred a one-year gap in production.”
CVN-78 Gerald R. Ford Class Next-Generation Aircraft Carrier. This program is a poster child for the effect of stretched production schedules on costs, though other programs like the MQ-8B Fire Scout helicopter UAV also illustrate the same principle. Note, however, that at least one critical sub-program, the EMALS aircraft launcher, is also experiencing major cost increases:
“Program costs increased $5,426.4 million (+15.5%) from $35,119.1 million to $40,545.5 million, due primarily to the shift from a four-year to five-year build cycle (+$4,131.2 million), which placed the program on a more fiscally sustainable path while continuing to support a minimum of 11 aircraft carriers through fiscal 2040. Additional increases resulted from revised cost estimates for the Electromagnetic Aircraft Launch System (EMALS) (+$1,292.6 million), platform non-recurring engineering (+$350.0 million), and labor and material projections (+$311.7 million), a stretch-out of the procurement buy profile (+$520.6 million), and the application of revised escalation indices (+$301.8 million). These increases were partially offset by decreases resulting from inflation and other miscellaneous adjustments (-$933.1 million) and a shipbuilding reduction across the program (-$627.0 million).”
V-22 Osprey Tilt-Rotor. A bookkeeping error accounts for almost all of the net decrease. Note, however, increases in support equipment estimates and in spares. Those are still less than the US GAO predicted, in a very negative 2009 report.
- US DoD (April 1/10) – Department of Defense Announces Selected Acquisition Reports.
- To be a really informed reader, read RAND’s “Pitfalls in Calculating Cost Growth from Selected Acquisition Reports” first.