Defense Acquisitions:

Improved Business Case Is Needed for Future Combat System's Successful Outcome

GAO-06-367: Published: Mar 14, 2006. Publicly Released: Mar 14, 2006.

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The Department of Defense (DOD) anticipates that the Future Combat System (FCS) will modernize the U.S. Army's ability to move, shoot, and communicate on the battlefield. It is an impressive concept that is the product of holistic, non-traditional thinking. The Army describes FCS as one of the most complex weapon acquisition programs ever executed because it involves developing and integrating a family of 18 systems and an information network. Army leadership started the program early as part of its effort to change Army culture and believes that the program risks are manageable. GAO is required by law to review the program annually. In this report, GAO analyzes FCS's acquisition business case and assesses requirements stability, technology maturity, soundness of the acquisition strategy, and reasonableness and affordability of program costs.

The FCS entered the development phase in 2003 and has not yet reached the level of knowledge it should have attained in the pre-development stage. The elements of a sound business case--firm requirements, mature technologies, a knowledge-based acquisition strategy, a realistic cost estimate, and sufficient funding--are still not demonstrably present. The Army will continue building basic knowledge in areas such as requirements and technologies for several more years. Requirements stability: The Army has reached agreement on FCS system of systems requirements--about 11,500--that help define how FCS units are expected to work as a whole. But the Army must continue to work out the technical feasibility and expected costs of the requirements for individual FCS systems. These requirements may not be completely stabilized until 2008. Until then, the Army expects the system-level requirements to change and to make trade-offs to offset technical risks and cost. Technology maturity: None of FCS's 49 critical technologies was at a level of maturity recommended by DOD policy at the start of a program. Some technologies may not reach full maturity until after production starts. Not having firm requirements matched with mature technologies at the start of development is a key indicator of program risk. Also, the Army is depending on 52 complementary programs, each of which is essential for FCS to perform as intended. Some of these programs have significant technical challenges; some do not have the funding needed to complete development. Soundness of acquisition strategy for design and production: The current acquisition strategy for FCS is improved over the original strategy but still calls for maturing technologies, designing systems, and preparing for production at the same time. Even if requirements and technologies proceed without incident, FCS design and production process maturity will not be demonstrated until after the production decision is made. Although production representative prototypes will not be available, the Army plans to test all FCS systems before committing to production. If problems are discovered in testing at that stage, they will be very expensive to correct. Reasonableness and affordability of program costs: The estimated cost of the FCS program now stands at $160.7 billion, a 76 percent increase since program start. This is a better estimate than the original, as it embodies a more realistic schedule and scope. Including the total investment for the 52 essential complementary programs, the FCS program cost estimate would reach the $200 billion range. The Army has taken steps it believes will control FCS costs. Yet, the current level of knowledge about FCS is low, which makes it difficult to have a solid basis for cost projections. FCS's long-term affordability depends on the accuracy of cost estimates, an increased level of procurement funding, and the level of competing demands.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matters for Congressional Consideration

    Matter: Based on its response to our report, it does not appear that DOD plans to assess the FCS business case against best practices or its own policies. Nor has DOD agreed to hold a go/no-go milestone review in 2008 based on the preliminary design review. Congress will likely be asked to approve fiscal years 2008 and 2009 funding requests before the FCS business case is adequately demonstrated. In light of DOD's response, the Congress may wish to consider directing the Secretary of Defense to report on the results of the May 2006 Defense Acquisition Board's review of the FCS program business case in the areas of requirements, technologies, acquisition strategy, cost, and funding.

    Status: Closed - Not Implemented

    Comments: There is no reference to the May 2006 Defense Acquisition Board review in any of the FY2007 authorization or appropriation language. Consequently, it appears that Congress elected not to implement this recommendation.

    Matter: Based on its response to our report, it does not appear that DOD plans to assess the FCS business case against best practices or its own policies. Nor has DOD agreed to hold a go/no-go milestone review in 2008 based on the preliminary design review. Congress will likely be asked to approve fiscal years 2008 and 2009 funding requests before the FCS business case is adequately demonstrated. In light of DOD's response, the Congress may wish to consider directing the Secretary of Defense to direct DOD to conduct and report the results of a milestone review in 2008, following the preliminary design review, that will be a go/no-go review of the FCS program that is based on its demonstration of a sound business case.

    Status: Closed - Implemented

    Comments: In the Fiscal year 2007 National Defense Authorization Conference Report, section 214, Congress directed the Secretary of Defense to carry out a Defense Acquisition Board milestone review of the Future Combat Systems program. Per the report, this milestone review is to happen not later than 120 days after the preliminary design review, now scheduled for 2009. Further, the Secretary shall make a determination as to whether the program should continue (i.e., a go/no-go decision). The supporting language of that section details the criteria for such a review and reflects the business case condition we outlined in our report.

    Matter: The Congress may also wish to consider restricting annual appropriations for fiscal years 2008 and 2009 for the FCS program until definitive progress in establishing a sound business case is demonstrated in terms of firm requirements, mature technologies, a knowledge-based acquisition strategy, a realistic cost estimate, and sufficient funding. Importantly, the Army must provide sufficient evidence that FCS will work.

    Status: Closed - Implemented

    Comments: In the Fiscal year 2007 National Defense Authorization Act Conference Report, section 214, Congress states that, beginning in 2009, the Secretary of Defense may not obligate any funds for procurement of the Future Combat System program until the secretary submits to Congress a report of the Defense Acquisition Board's milestone review that is scheduled to occur no more than 120 days after the program's preliminary design review. The contents of that report, as directed by Congress, reflect the knowledge-based acquisition criteria outlined in our report.

    Recommendations for Executive Action

    Recommendation: The Secretary of Defense should limit DOD's commitment to the FCS product development phase and eventual production until a sound business case that is consistent with DOD acquisition policy and best practices can be clearly demonstrated.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: While DOD partially concurred with this recommendation, it does not appear that DOD intends to limit their commitment to the product development phase or eventual production of FCS until a sound business case is demonstrated. According to OSD officials, they will consider many of the GAO business case criteria (e.g., mature technologies, available funding, defined requirements, etc.) when they examine the program, but they stop short of saying those criteria may cause DOD to reconsider their commitment to the FCS program.

    Recommendation: The Secretary of Defense should lay the groundwork for the Army's development of a sound FCS business case by tasking the spring 2006 Defense Acquisition Board to revaluate the FCS business case--including requirements, technologies, complementary programs, acquisition strategy, cost, and funding availability--in light of its own acquisition policies. In its reevaluation, the board should (1) assess both the program's prospects for success and the consequences of not delivering desired capability within budgeted resources and (2) ensure that the Army has a disciplined way to measure and assess the cumulative effects of individual requirements, technology, design, and cost changes on the primary FCS characteristics of lethality, survivability, responsiveness, and sustainability.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: The Defense Acquisition Board conducted an annual review of the Future Combat System program in May 2006 but did not specifically evaluate the FCS business case, as we had recommended. Further, the Board did not assess the program's prospects for success or the cumulative effects of individual changes on the primary FCS characteristics.

    Recommendation: The Secretary of Defense should lay the groundwork for the Army's development of a sound FCS business case by tasking the spring 2006 Defense Acquisition Board to, if the business case for FCS is found not to be executable, determine whether investments in FCS design- and production-related activities should be curbed until system-level requirements are firm and technologies are mature.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: Although the Defense Acquisition Board reviewed the Future Combat System program in May 2006, it did not consider if investments in FCS design and production-related activities should be curbed until requirements are firm and technologies are mature.

    Recommendation: The Secretary of Defense should lay the groundwork for the Army's development of a sound FCS business case by tasking the spring 2006 Defense Acquisition Board to, if the deficiencies in the FCS business case are judged to be recoverable, establish the incremental markers that are needed to demonstrate that FCS is proceeding on a knowledge-based approach and to hold the Army accountable, through periodic reporting or other means, for achieving those markers. The markers should include, but not be limited to (1) the schedules for all critical technologies to realistically progress through technology readiness level 7; (2) waypoints and criteria for reaching a set of system-level requirements that are both technically feasible and affordable; (3) the schedule and funding availability for developing essential complementary programs; (4) waypoints and criteria to be used to lead up to and complete the preliminary and critical design reviews; (5) waypoints and criteria to be used to lead up to and complete testing of fully integrated prototypes of all FCS systems, including the network; and (6) waypoints and criteria to be used to demonstrate that key production processes are in statistical control.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: In response to our recommendation, DOD concurred with the intent but did not agree to do anything specific to address the details of our recommendation.

    Recommendation: The Secretary of Defense should reassess the FCS cost estimate and funding availability based on the independent cost estimate and any program changes to improve its business case.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: Early in calendar year 2007, the Army announced numerous changes to the scope and structure of the FCS system of systems concept. Program officials attributed these changes to a need to operate within likely funding availability, which resulted from analysis of independent cost estimates and acknowledgement of long term funding constraints.

    Recommendation: The Secretary of Defense should establish a milestone review by the Defense Acquisition Board following the Army's preliminary design review scheduled for 2008. This should be a go/no-go review of the FCS program that is based on (1) the program's ability to demonstrate whether it is meeting the knowledge markers outlined above at times consistent with DOD policy and best practices and (2) whether the funds can still be made available to afford its costs.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: Although the Defense Acquisition Board plans to conduct annual reviews of the Future Combat System program, including a review that will follow the program's preliminary design review, none of these reviews will be considered a milestone review and are not considered to thoroughly examine the FCS business case as we recommended.

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