Missile Defense:

Cost Increases Call for Analysis of How Many New Patriot Missiles to Buy

NSIAD-00-153: Published: Jun 29, 2000. Publicly Released: Jul 26, 2000.

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Pursuant to a congressional request, GAO provided information on the cost increases in the Patriot Advanced Capability-3 program, focusing on: (1) how much costs have increased and the reasons for those increases; (2) whether additional cost increases are expected; (3) what is being done to control costs; and (4) whether the Army's requirement will be met by planned missile procurements.

GAO noted that: (1) estimated costs of the Patriot Advanced Capability-3 program increased from about $3.9 billion in 1994 to about $6.9 billion in March 2000--a 77-percent cost increase; (2) the number of missiles to be procured decreased from 1,200 to 1,012; (3) missile development costs accounted for about $775 million of the cost increase, and missile procurement costs accounted for about $2.2 billion; (4) a major reason for the development cost increase was that the original cost estimate did not recognize the level of effort and difficulties associated with developing and producing a hit-to-kill missile compared with those of previous missiles; (5) missile procurement costs increased primarily because the procurement was extended by 7 years; (6) missile procurement was originally scheduled for the 6-year period from 1997 through 2002; (7) the current procurement schedule covers the 13-year period from 1998 through 2010; (8) costs are likely to increase further for several reasons; (a) the Department of Defense (DOD) has already recognized that contractor costs for missile development could exceed the contractor's estimate by $26 million; (b) DOD's Director for Operational Test and Evaluation was concerned about the adequacy of the testing, DOD is considering additional tests; and (c) DOD officials estimate that costs could increase between $72 million and $100 million because of risks and potential schedule delays associated with completing missile development; (9) DOD has begun to implement a number of program changes to control costs, and other changes are being studied; (10) other measures being studied include additional hardware changes and new contracting strategies; (11) there is a gap between the Army's stated requirements and DOD's planned missile procurements; (12) the Army states that 2,200 Patriot Advanced Capability-3 missiles are required to comply with the national security strategy of winning two nearly simultaneous major wars; (13) because of its concerns about program affordability, DOD never planned to buy all 2,200 missiles; (14) it originally planned to buy 1,200 missiles, and in light of cost increases, it now plans to procure 1,012; (15) Army officials told GAO that having fewer than 2,200 missiles would force the Army to defend forces and critical assets with less capable missiles; and (16) if further cost increases occur, it could decide to buy fewer missiles, extend the procurement period, or spend more to maintain the current plan.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD officials told GAO that several missile utility assessments had addressed the quantity of PAC-3 missiles, the timing of the procurement, and the associated risks.

    Recommendation: To help determine how many upgraded Patriot missiles to buy, the Secretary of Defense should perform detailed analyses and report to Congress on the expected costs, benefits, and implications of the currently planned and alternative procurement levels. These analyses should, at a minimum, examine expected impacts of: (1) buying more missiles; (2) buying fewer missiles to address increased costs; or (3) buying the same number of missiles but extending the procurement period or increasing funding to address increased costs. They should also examine the potential degradation in defense capability resulting from any gaps between alternative procurement levels and the Army's stated requirements.

    Agency Affected: Department of Defense


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