Unmanned Aircraft Systems:
Global Hawk Cost Increase Understated in Nunn-McCurdy Report
GAO-06-222R: Published: Dec 15, 2005. Publicly Released: Dec 15, 2005.
To provide for oversight of cost growth in DOD major defense acquisition programs, Congress passed legislation, commonly referred to as Nunn-McCurdy, which requires DOD to notify Congress when a program's unit cost growth exceeds (or breaches) the latest approved acquisition program baseline by at least 15 percent. If the cost growth has increased at least 25 percent over the baseline, the Secretary of Defense must certify to Congress that (1) the program is essential to national security; (2) no alternatives exist which will provide equal or greater military capability at less cost; (3) new program acquisition or procurement unit cost estimates are reasonable; and (4) the management structure is adequate to control unit cost. On April 13, 2005, the Acting Secretary of the Air Force formally notified Congress that the procurement unit cost of the Global Hawk had increased 18 percent over the baseline estimate. As requested, we are in the process of reviewing the acquisition strategies and requirements for several unmanned aircraft systems, including the Global Hawk. While that work will not be completed for some months, we are issuing this correspondence because we have developed important information on the accuracy and completeness of the Air Force's reporting of the Global Hawk unit cost increase that needs attention.
The Air Force's Nunn-McCurdy report to Congress understates the unit cost increase in that it does not include $400.6 million in known additional procurement costs. Including these costs results in procurement unit cost growth of 31 percent over the current baseline versus the 18 percent reported by the Air Force. In our view, this larger unit cost increase should have been reported to Congress with the required certification by the Secretary of Defense. The additional costs not included in the Air Force's reporting are for the purchase and installation of sensors, enhancements to communications equipment and ground stations, parts procurement, and other items required to achieve the system's initial, full-up capability. Air Force Global Hawk program budget documents included these costs before submitting the April 2005 Nunn-McCurdy notice to Congress and before the March 2005 publication of the annual Selected Acquisition Report. However, these costs were removed after the program office budget reporting documents were submitted to DOD offices in the Pentagon. Office of Secretary of Defense (OSD) officials explained that these costs had been recategorized as modifications that have historically been excluded from baseline measurements. We believe these costs should have been reported since they are needed to achieve the system's required capabilities.
Recommendation for Executive Action
Status: Closed - Implemented
Comments: DOD has taken action to implement part of our recommendation. Although it did not agree with the methodology we used to calculate the unit price increase of 31 percent, DOD agreed to revise the unit cost calculation presented in the Selected Acquisition Report. In June 2006, the Secretary of Defense complied with the requirements of the Nunn McCurdy statute by certifying that the Global Hawk was essential to the national security. This certification is required if the unit cost increase exceeds 25 percent. In March 2007, DOD formally approved the program's revised acquisition program baseline, thereby resetting the program's cost and schedule threshold and eliminating the breach.
Recommendation: The Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to revise the Global Hawk report and take the necessary actions to comply with the Nunn-McCurdy legislation for reporting and certification.
Agency Affected: Department of Defense