Costing the Marines’ EFV
On August 22/07, the Pentagon released its Selected Acquisition Reports for the June 2007 reporting period, and the US Marines’ Expeditionary Fighting Vehicle program was listed:
“The SAR was submitted to report schedules slips of approximately two years since the December 2006 SAR. In February 2007, the program experienced a critical Nunn-McCurdy unit cost breach due primarily to system reliability challenges and a quantity reduction. The department certified a revised program to Congress in June 2007. Program costs increased $4,069.4 million (+34.2 percent) from $11,902.7 million to $15,972.1 million.”
To be sure, the new $3.5 million South Korean XK-21 amphibious IFV hasn’t had these problems; but then, the specifications they were handed were more restrained in key areas like water speed (about 5 kph) and aiming to cross rivers rather than swim in medium ocean sea states. DID went and talked to the EFV Program Office to get some explanations for this latest SAR, and also of the EFV’s overall cost growth history. We also wanted a per-vehicle cost for the EFV, because we’d seen numbers ranging for $16 million to $27 million. What follows is their explanation. DID has removed nothing, but we have spliced together both the original response and their further clarification in order to create a single explanation…
The EFV Program Office Says:
“There is Program Acquisition Unit Cost (PAUC), which is computed by dividing Program Acquisition Cost by the Program Acquisition Quantity (which is how you derived the $27 million dollar figure). It’s actually $26.927M. The PAUC is the estimated cost of Research, Development, Test and Evaluation (RDT&E), procurement, and system specific military construction necessary to acquire the defense system. That’s why this figure is always larger. Thus, due to the program restructure sliding 4.5 years to the right, EFV has become a $15.9 Billion dollar program in Total Life Cycle Cost for the 573 vehicles [see this DID article, explaining why EFV was cut to 573 vehicles].
Then there is Average Procurement Unit Cost (APUC) which is calculated by dividing total procurement cost by the number of articles to be procured. The Average Procurement Unit Cost (APUC) of the program rose from $5.3 million to $13.3 million in Then-Year (TY) dollars in 1993, to $21.7 million in now non-adjusted dollars. Total procurement cost includes flyaway, rollaway, sailaway cost (recurring and non-recurring costs associated with production of the item such as hardware/software, Systems Engineering (SE), Engineering changes and warranties), plus the costs of procuring Technical Data (TD), training, support equipment, and initial spares.”
“On what happened from FY 93 to FY 07, the correct answer is a cost growth of $8 million occurred from FY 93 to FY 07. EFV experienced cost growth in Base Year [Fiscal Year 93 Dollars] (FY93$) from the Milestone II (MSII) Average Procurement Unit Cost (APUC) estimate of $5.3 million (FY93$) to the estimate of $13.3 million (FY93$) in 2007. This $8 million rise was for three principal reasons: Estimating [poor estimating accounted for $5 million of the $8 million increase due to analogies to other less complex legacy combat vehicles like the M551 Sheridan and Bradley Fighting Vehicle]; Cost improvement curve assumptions accounted for $1.5 million of the $8 million increase due to over-optimism rather than conservative estimates like those experienced by M1A1 Abrams); and Quantity/ Production Rate Changes accounted for $1.5 million of the $8 million increase due to reducing the EFV acquisition objective from 1013 to 573 based on the ground mobility study and reducing the maximum production rate of 120 vehicles per year to 55 vehicles per year.”
“Then there is Base Year (BY) Costs which is a reference period that determines a fixed price level for comparison in economic escalations and cost estimates. The increase in the fixed price of each EFV of $8 million in [Base Year dollars] from 1993 in adjusted dollars is now slightly more than $16 million in (non-adjusted dollars). This figure is the one that most refer to as it simplifies the comparison. This is the cost estimate for EFV that is being used — $16 million a copy.”
The bottom line?
“The $21.7 million figure in non-adjusted Then Year dollars (TY$) is “fairly” equal to the $16 million in base year (FY93$) dollars. I say fairly equal because you have to factor in a new dynamic stemming from the Nunn McCurdy process. The Cost Analysis Improvement Group (CAIG) reviewed the EFV program and developed an independent estimate of RDT&E, procurement, and MILCON costs and resource requirements to support the Nunn-McCurdy certification process. The CAIG estimate for the acquisition costs for the EFV is now pegged at $16,123.9 million (Then Year dollars (TY$)).
However, the December 2006 SAR did not reflect the latest USMC cost estimate, which differs from the CAIG estimate. The bottom line is that following Nunn-McCurdy [DID: Congressional law covering defense program cost growth and procedures], the U.S. Navy will fund EFV to the CAIG estimate.”
In other words, the Marines are budgeting $16.1 billion for the program, and each vehicle will cost about $21.7 million in dollars spent to buy it, but that’s only $16 million in an apples-to-apples comparison relative to the $13.3 million quoted after the 1993 price hike when inflation et. al. are factored out.
We hope that’s clearer to everyone. US defense reporting regulations work this way, but the experience of working through this leads us to congratulate the Australian DoD once again on their policy of quoting the “real dollars” program cost estimate at all times when discussing large defense programs like their LHD Canberra Class amphibious ships.