National Defense: Department of Defense's Waiver of Competitive Prototyping Requirement for the Navy's Fleet Replenishment Oiler Program

What GAO Found

The Department of Defense’s (DOD)rationale for waiving the competitive prototyping requirement in the Weapon Systems Acquisition Reform Act of 2009, as amended (WSARA), for the Navy’s Fleet Replenishment Oiler (T-AO(X)) program covered one of the two bases provided in the statute; namely that the cost of producing competitive prototypes exceeds the expected life-cycle benefits (in base year dollars) of producing the prototypes. The Navy’s T-AO(X) program is an effort to replace its 15 existing fleet oilers. These ships entered service between 1986 and 1996 and have an expected service life of 35 years. The first ship will reach that age in 2021. The primary role of fleet oilers is to transfer fuel to Navy surface ships that are operating at sea, so as to extend the operating endurance of these ships and the aircraft they carry. DOD’s rationalefor waiving the WSARA competitive prototyping requirementis based largely on the acquisition strategy for the program. According to the waiver, the T-AO(X) program is a non-developmental ship acquisition program that requires no new technology development.

In the waiver, DOD concluded that the Navy’s cost-benefit analysis was reasonable. GAO found that the Navy’s cost-benefit analysis was consistent with key principles in DOD’s policy on economic analysis, which states that each feasible alternative for meeting an objective must be considered and its life-cycle costs and benefits evaluated. The Navy cost-benefit analysis supporting the waiver examined two prototyping scenarios: competitively producing and testing two ship prototypes, which would increase acquisition costs by $1.35 billion (in base year 2013 dollars), and producing and testing a single ship prototype, which would increase the acquisition costs by $742 million (in base year 2013 dollars). Because the T-AO(X) program is a non-developmental ship acquisition program, requires no technology development, and utilizes limited military unique systems and equipment, the Navy concluded the only life-cycle benefits that could likely be realized from prototyping was a reduction in operations and support costs through savings in fuel consumption, maintenance, and sustainment support. The Navy’s analysis assumed $370 million (in base year 2013 dollars) in operations and support cost savings for both scenarios, but based on similar shipbuilding programs the likely cost savings would be lower.

WSARA required the Secretary of Defense to modify guidance to ensure that the acquisition strategy for each major defense acquisition program provides for competitive prototypes before Milestone B approval--which authorizes entry into system development--unless the Milestone Decision Authority waives the requirement. Competitive prototyping, which involves commercial, government, or academic sources producing early prototypes of weapon systems or critical subsystems, can help DOD programs reduce technical risk, refine requirements, validate designs and cost estimates, and evaluate manufacturing processes prior to making major commitments of resources. It can also help reduce the time it takes to field a system, and as a result, reduce its acquisition cost. WSARA also provides that whenever a Milestone Decision Authority authorizes a waiver of the competitive prototyping requirement on the basis of what WSARA describes as "excessive cost," the Milestone Decision Authority is required to submit notification of the waiver, together with the rationale, to the Comptroller General of the United States. WSARA further provides that no later than 60 days after receipt of a notification of a waiver, GAO is to review the rationale for the waiver and submit a written assessment of that rationale to the congressional defense committees.

On July 15, 2014, GAO received notice from DOD that it had waived the competitive prototyping requirement for the Navy’s Fleet Replenishment Oiler (T-AO(X)) program. In this report, GAO assesses DOD's rationale for waiving the competitive prototyping requirement for the T-AO(X) program and the analysis used to support it.

For more information, contact Michael J. Sullivan at (202) 512-4841 or sullivanm@gao.gov.