Defense Logistics:

Improvements Needed to Enhance Oversight of Estimated Long-term Costs for Operating and Supporting Major Weapon Systems

GAO-12-340: Published: Feb 2, 2012. Publicly Released: Feb 2, 2012.

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Cary B. Russell
(404) 679-1808
russellc@gao.gov

 

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What GAO Found

DOD’s reports to Congress on estimated weapon system O&S costs are often inconsistent and sometimes unreliable, limiting visibility needed for effective oversight of these costs. The SAR statute requires that life-cycle cost reporting for major weapon systems be uniform, to the extent practicable, across the department, but GAO found a number of inconsistent practices in how program offices were reporting life-cycle O&S cost estimates in the SAR. Program offices were inconsistent in (1) the explanatory information they included with the cost estimates; (2) the source of the cost estimate they cited as the basis for the reported costs; (3) the unit of measure they used to portray average costs; (4) the frequency with which they updated reported costs; and (5) the reporting of costs for an antecedent system being replaced by the new weapon system. For example, 35 (42 percent) of the 84 programs that reported O&S costs in the 2010 SAR did not cite a source of these data, contrary to DOD’s guidance, and 57 (68 percent) of the programs did not report O&S costs for an antecedent system. Also, O&S cost submissions in the SAR did not always incorporate best practices for presenting cost estimates, such as tracking cost changes over time and identifying cost drivers. In addition, 11 systems did not provide O&S cost estimates in the 2010 SAR.

Although SARs are intended to provide Congress with authoritative program information on major weapon systems, 7 of the 15 sample programs GAO reviewed submitted unreliable O&S cost estimate data in the 2007, 2009, or 2010 SARs. For example, an Air Force program underreported O&S costs by $2.1 billion (fiscal year 2002 dollars), or 18 percent. While some of the program offices did not provide an explanation for the errors in the submitted data, others cited specific reasons. For example, one Navy program office underreported O&S costs in the SAR and explained that it excluded certain costs that were not under its control, such as externally funded spare parts and military personnel. However, excluding such costs is contrary to the SAR statute. An Air Force program reported current and projected funding for the program rather than estimated life-cycle O&S costs. This practice also had the effect of underreporting these costs.

DOD’s reports to Congress on estimated weapon system O&S costs were often inconsistent and sometimes unreliable due to a lack of (1) detailed implementation guidance for reporting these costs and (2) an effective process for reviewing the O&S cost sections of the SAR before final submission to Congress. DOD’s guidance collectively provides minimal instructions for O&S cost reporting. The guidance also does not incorporate some of the best practices GAO has identified for presenting cost estimates. Further, although the SAR data submitted by program offices are subject to multiple reviews within the military services and by the Office of the Secretary of Defense, this review process has not provided assurance that O&S costs are reported consistently and reliably. In the absence of improvements to the SAR guidance and to the review process, deficiencies in reporting O&S costs are likely to continue. Improved reporting of O&S costs in the SAR could help to place more emphasis on assessing, managing, and controlling long-term weapon system O&S costs.

Why GAO Did This Study

With the nation facing fiscal challenges and the potential for tighter defense budgets, Congress and the Department of Defense (DOD) have placed more attention on controlling the billions of dollars spent annually on weapon system operating and support (O&S) costs. These costs include, costs for repair parts, maintenance, and personnel, and account for about 70 percent of the total costs of a weapon system over its life cycle. The selected acquisition report (SAR) is DOD’s key recurring status report on the cost, schedule, and performance of major defense acquisition programs and is intended to provide authoritative information for congressional oversight of these programs. Oversight of O&S costs is important because many of the key decisions affecting these life-cycle costs are made during the acquisition process. GAO reviewed weapon system O&S cost estimates that DOD submits in the SAR. Specifically, GAO determined the extent to which the SARs provide consistent and reliable O&S cost estimate information that enables effective oversight of these weapon system costs. To conduct its review, GAO analyzed SAR data for 84 major systems that submitted O&S cost estimates in the 2010 SAR and selected a nonprobability sample of 15 systems for more in-depth review.

What GAO Recommends

To enhance visibility of weapon system O&S costs during acquisition, GAO recommends that DOD improve its guidance to program offices on cost reporting and also improve its process for reviewing these costs prior to final submission of the SAR to Congress. DOD concurred with GAO’s recommendations.

For more information, contact Cary B. Russell at (404) 679-1808 or russellc@gao.gov.

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

    Recommendations for Executive Action

    Recommendation: To improve visibility over estimated life-cycle O&S costs during weapon system acquisition, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology and Logistics, in conjunction with the Secretaries of the Army, the Air Force, and the Navy, to evaluate the current review process, identify any weaknesses, and institute corrective actions as needed to provide greater assurance that estimated life-cycle O&S costs included in the SAR reports submitted by program offices consistently follow the implementation guidance, including any revisions to the guidance as described above, and report reliable cost data. As part of this evaluation, DOD should consider whether additional steps are necessary for the department to enhance the emphasis placed on reporting estimated life-cycle O&S costs in the SAR.

    Agency Affected: Department of Defense

    Status: Open

    Comments: DOD concurred with our recommendation to evaluate the review process of the SAR operating and support (O&S) costs reported by program offices. In its written comments, DOD noted plans for an OSD O&S cost subject matter expert to attend each of the services' annual 2011 SAR program reviews in March 2012 to ensure OSD comments were addressed and to provide additional emphasis on the O&S cost section of the SAR. Also, DOD planned to convene a joint OSD/service working group to evaluate the O&S cost review process after issuing revised SAR O&S guidance and increasing the emphasis on the O&S section of the SAR report. According to OSD officials in late June 2013, the SAR O&S cost guidance has not been finalized and the review process has not been evaluated.

    Recommendation: To improve visibility over estimated life-cycle O&S costs during weapon system acquisition, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology and Logistics to revise DOD's guidance for implementing statutory SAR requirements. The revisions, at a minimum, should provide additional detail on the following areas: (1) the explanatory information that should be included in the O&S narrative, including the specific assumptions underlying the cost estimate; (2) the source to be used as the basis for reported O&S cost estimate information, especially when more than one source is available (such as a program office cost estimate, service cost estimate, and CAPE independent cost estimate); (3) a consistent unit of measure for reporting average costs over time by commodity type-or other designated weapon system group-as agreed to by OSD and the services; (4) criteria for identifying an antecedent system and reporting on the results of the cost comparison in the SAR; and (5) reporting O&S costs for major modifications to existing weapon systems. In revising the guidance, the Under Secretary of Defense should incorporate best practices for preparing and presenting cost estimates, including: (1) a comparison of current-year to prior-year O&S cost estimates; the identification of cost drivers that resulted in changes in these estimates, if significant; and the level of detail that should be reported; (2) a comparison of the reported cost estimate with the most recent independent cost estimate, along with an explanation of any significant differences between the two estimates; and (3) The frequency with which O&S costs reported in the SAR should be updated, including guidance on what changes in the program's status should trigger an update.

    Agency Affected: Department of Defense

    Status: Open

    Comments: DOD concurred with our recommendation to update and expand the Selected Acquisition Report (SAR) guidance for reporting operating and support (O&S) costs. In its written comments, DOD noted that the Defense Acquisition Guidebook contains the SAR guidance, which would be revised accordingly. However, in late June 2013 OSD officials said the SAR guidance is still under revision and has not yet been included in the Defense Acquisition Guidebook. While the SAR guidance has not been finalized, OSD has made some improvements to SAR reporting of O&S costs. For example, interim guidance was issued for the 2012 annual SAR reporting cycle that incorporated many elements of this recommendation.

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