Defense Management:

DOD Needs Better Information and Guidance to More Effectively Manage and Reduce Operating and Support Costs of Major Weapon Systems

GAO-10-717: Published: Jul 20, 2010. Publicly Released: Jul 20, 2010.

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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.

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. 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.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD issued Interim DOD Instruction 5000.02 in November 2013, which requires major weapon system programs to retain the DOD component and service cost agency operating and support cost estimates developed at any time during the life cycle of the system and submit these estimates to OSD Cost Assessment and Program Evaluation (CAPE). Further, according to the instruction, copies of reports, briefings, and other supporting documentation used to prepare the cost estimates must also be retained and submitted to OSD CAPE. The instruction specifically includes the documentation used to prepare cost estimates for acquisition milestones, as well as for other program reviews and those incorporated into Selected Acquisition Reports, which are provided to Congress.

    Recommendation: To improve DOD's ability to manage and reduce O&S costs of weapon systems over their life cycle, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology and Logistics and the Director of Office of the Secretary of Defense (OSD) Cost Assessment and Program Evaluation to 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.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: DOD partially concurred with this recommendation, noting only that such guidance should be issued by OSD Cost Assessment and Program Evaluation(and not in coordination with the Undersecretary of Defense for Acquisition, Technology, and Logistics). After the issuance of our report, the National Defense Authorization Act for Fiscal Year 2012 similarly required the Secretary of Defense to issue guidance regarding O&S costs for major weapon systems, including establishing standard requirements for the collection of data on O&S costs for major weapon systems and requiring the military departments to revise their cost visibility data systems to ensure that they collect complete and accurate data and make such data available in a timely manner. The guidance was due not later than 180 days after the date of the enactment of the act, which was December 31, 2011. DOD did not meet this deadline. As of Septemeber 2014, DOD officials indicated that draft guidance has been developed but not yet issued.

    Recommendation: To improve DOD's ability to manage and reduce O&S costs of weapon systems over their life cycle, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology and Logistics and the Director of OSD Cost Assessment and Program Evaluation to 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 Visibility and Management of Operating and Support Costs (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.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: The Army developed a strategy for improving its VAMOSC system. The strategy identifies the operating and support (O&S) cost elements not captured by the Army's VAMOSC system, and includes plans and timeframes for incorporating additional O&S cost elements and also expanding several of the existing O&S cost elements within the system. Early versions of the Army's VAMOSC strategy included estimates of the resources required to improve the system. However, the Army has updated the strategy several times to reflect the status of implementation efforts. As of the July 2013, the strategy indicates many of the planned efforts to obtain or expand O&S cost elements are either partially or fully implemented, but dependent on continued funding for other Army information systems.

    Recommendation: To improve DOD's ability to manage and reduce O&S costs of weapon systems over their life cycle, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology and Logistics and the Director of OSD Cost Assessment and Program Evaluation to 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.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: DOD issued Interim DOD Instruction 5000.02 in November 2013, which requires the Military Departments to update estimates of operating and support costs periodically throughout the life-cycle of major weapon systems to (1) determine whether preliminary information and assumptions remain relevant and accurate and (2) identify and record reasons for variances. Further, according to the instruction, an independent review of operating and support cost estimates must be conducted at reviews held after a program reaches initial operational capability, which generally occurs after the last acquisition decision point before production ends. Finally, the instruction requires that each operating and support cost estimate be compared to earlier cost estimates and the comparison must identify the reasons for significant changes.

    Recommendation: To improve DOD's ability to manage and reduce O&S costs of weapon systems over their life cycle, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology and Logistics and the Director of OSD Cost Assessment and Program Evaluation to 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.

    Agency Affected: Department of Defense

  5. Status: Closed - Not Implemented

    Comments: DOD concurred with this recommendation. However, as of September 2014, the Department did not provide evidence of changes to guidance regarding the documentation or retention of historical information on weapon system program changes to aid in effective analysis of operating and support costs (other than information required to be retained to support DOD Component and Service Cost Agency operating and support cost estimates).

    Recommendation: To improve DOD's ability to manage and reduce O&S costs of weapon systems over their life cycle, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology and Logistics and the Director of OSD Cost Assessment and Program Evaluation to 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.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: DOD concurred with our recommendation. Subsequent to our report, Congress approved a provision of the National Defense Authorization Act for Fiscal Year 2012 (Public Law 112-81) stating that the Director of Cost Assessment and Program Evaluation shall be responsible for developing and maintaining a database on operating and support estimates, supporting documentation, and actual operating and support costs for major weapon systems. This legislative action meets the intent of our recommendation.

    Recommendation: The Secretary of Defense should 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.

    Agency Affected: Department of Defense

 

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